PTP K-1 QBI Sec 199a PAL not carrying forward when At-Risk Losses present. Bug?

[kstheory]

Using TT 2020, I am amending my 2020 return to reflect that PTP some investment is not at risk instead of all at risk. The losses shift as expected from the Passive Loss section to Form 6198. In either case, the losses are suspended/disallowed.

But one effect does not appear right: in the original return, the carried-over prior-year and current-year disallowed passive losses were carried forward in the QBI Sec 199s smart worksheet; however, in the pro-forma amended return, none of the prior-year disallowed passive losses are carried forward.

I can't say I understand the QBI rules well enough to know whether or not change in classification of losses affects carryforward of prior-year carryover. I would think if would have no impact. Could this be a bug?

[AliciaP1]

This is a known issue that was investigated.  The correction is set to be released on 04/08/2022.  If you are using one of the desktop versions of TurboTax you will need to update your software to apply it.  To do this you can follow these steps:

1. Open TurboTax
2. Click Online in the black menu bar at the top of the screen
3. Click Check for Updates and progress through the installation process

[kstheory]

@AliciaP1 

Hi,

Thanks for the reply. I checked for the update today and I see that it isn't ready. I'm using TT 2020 to amend.

I'm not sure if this update also addresses the issues with the manual adjustment needed in K-1 Section D2 Line 4b:

First, this adjustment is for the PAL loss limit that isn't being applied to the QBI loss when TT is applying an At-Risk rules loss limit. The instructions say this must be entered manually, which I would think TT could easily do).

Second, this PAL adjustment for the QBI is also supposed to be tracked on a FIFO basis, including the years when there was no suspension amount under at-risk rules. It isn't that obvious how this manual PAL is carried forward.

Third, are the at-risk carryforwards being calculated properly? If there is an allowed loss at-risk loss amount, it should free up prior-year disallowed at-risk losses first. The relevant amount from those years should not be carried forward once used. But TT seems to be calculating it LIFO.

[shreeman]

by default everything lumped to 2018
Look for K1 - rental income, section
Carryovers to 2021 additional information for section 199A deduction
Disallowed passive losses by year and type

get QBI info from prior tax years and enter missing for each year. Default is lumped to 2018. When you enter 2018 QBI number will change automatically.

[AliciaP1]

I apologize- I did not read the year correctly and thought you were referring to 2021.  There is no error for 2020.

You cannot offset PAL with at-risk losses or vice versa.  QBI losses follow the passive or active loss rules as well.  Each year of loss is reported separately but it rolls forward as a total into the prior year when it is used to offset the same type of income, again passive losses offset passive income and at-risk losses offset at-risk income.  There is no LIFO/FIFO treatment.

@kstheory

[Andybill]

Hello @kstheory did you ever come up with a solution? I'm having the same issue of passive QBI suspended losses not carrying forward due to what I'm assuming to be at-risk loss limits kicking in. I suppose I'll have to manually enter the carryover.

[PatriciaV]

Yes, if you had carryovers from last year that weren't transferred to the current year return, you should enter those carryovers for the relevant business or property. TurboTax includes questions to allow you to review/edit/enter carryovers for these activities.

@Andybill