Suspended passive loss or Net Operating Loss on QBI

[Tlujan]

Last year I had rental losses totaling -$15,727 and unemployment income of $4,500. TurboTax combined the two which resulted in an AGI of $-11,227. It indicated I took the standard deduction and put the full -$15,727 loss on "QBI loss carryover from Form 8895 line 16". 

1. Why did the full amount end up on line 16 and not the AGI of -$11,227?   

-I suspect my standard deduction reduced the $4,500 and left the -$15,727 remaining. Am I correct?

2. Does this mean this loss will be treated as passive and therefore only reduce passive income in future years? OR does the "Rental Real Estate Loss Allowance" apply to my situation and now I have a Net Operating Loss that can be applied to any income in future years (passive or non-passive)?

3. Is there a distinction between QBI Passive Losses and non-QBI Passive Losses? If I do not elect the safe harbor to qualify these properties as qualified businesses in future years, will I end up carrying these losses and generating suspended losses on non-QBI properties? 

[Mike9241]

1) by definition UC you received is not businss income and thus not in the QBI calculation. neither i the stndard deduction. your QBI loss c/o is solely from the rental loss

2) the passive loss was allowed and now instead of being a PAL carryover it's a net operationg loss carryover. since Turbotax does not calculate NOLs you'll have to ente this manually when you do your 2023 return.

3) passive does not apply to QBI. the 2022 QBI loss from the rental would be used in 2023 to offset QBI income

say from schedule C, S-corp, partnership.farm  or even business income passthrough from a trust

[Tlujan]

@Mike9241 Mike, thank you so much for the reply, it was very helpful.  I got confused when TT used my QBI loss to calculate AGI, but I guess that can be put aside when considering how much QBI loss to carry over to the following year, right?

You mentioned, "the passive loss was allowed and now instead of being a PAL carryover it's a net operating loss carryover".  The passive loss we're referring to IS my QBI loss and is indicated as a -$15,727 loss on "QBI loss carryover from Form 8895 line 16" from 2021. In 2022, I sold a property and would like to use the 2021 QBI loss to offset capital gains.  When completing my taxes for 2022, however, Turbo Tax is trying to use my 2022 rental losses to offset that capital gains, which is not what I want. 

How do I tell TT to use the QBI loss to offset capital gains BEFORE it uses passive losses from the current year?

[Critter-3]

How do I tell TT to use the QBI loss to offset capital gains BEFORE it uses passive losses from the current year?

You cannot ... there are rules and the program follows them.  Those items are not the same and they are not intertangible ... you cannot use oranges  to make apple sause. 

[Tlujan]

@Critter-3 can you elaborate on your answer? The QBI Loss was generated in previous years on the same rental property that is now being sold.  How can these losses not offset capital gains if they are from the same activity?

[Mike9241]

your confusing QBI with items of income/loss. they are different. QBI does not affect AGI.  its a separate calculation which if you end up with positive QBI you may be entitled (there are all sorts of rules that can result in it being limited) to a deduction against taxable income of up to 20% of net QBI Income     

in fact you lost about 15K in rental that created both a NOL in your situation and a QBI loss carryover.

the NOL can be used to offset any type of income though the amount you may be able to use in any year may be limited by the rules under IRC section 172. QBI loss c/o can only offset QBI income. Under IRC 199A(c)(3)(B)(i) capital gain is never QBI.

"Turbo Tax is trying to use my 2022 rental losses to offset that capital gains." That's Turbotax following the tax rules. your capital gains would be offset by the 2021 NOL and the 2022 rental loss.  it is even possible depending on the amount of capital gains vs rental loss and other items of income and deductions you have utilized the entire 2021 NOL but have a 2022 QBI loss carryover to go with the 2021 QBI loss carryover.

whereas passive loss carryovers are allowed when the passive activity is disposed of so they are utilized, QBI loss carryovers don't get utilized until there is QBI income even when you dispose of the activity that created the QBI loss carryover.