What is SECTION 465(d) CARRYOVER?

[IreneS]

Section 465 (d) carryover refers to the at-risk rules of Section 465 of the Internal Revenue Code.  Your losses are limited to the amount you have "at risk" in the activity.  A loss that was disallowed because of the at-risk rules is generally treated as a deduction from the same activity in the following tax year (a carryover).

The figure you see for Section 465 (d) carryover is the amount of loss you weren't able to take last year and may be able to take this year.

For more information see IRS Pub. 925 - Passive Activity and At-Risk Rules

[sandyfromukiah]

Thank you

[vivianrose84]

Is having a 465 (d) carryover that causes one of my businesses to show a loss the reason I got rated as a "medium" audit risk this year? It says it's because my business shows a loss. Technically this business doesn't have a loss. It didn't make much money, because I was doing better at my other business last year and spent very little time on this business. So I made less than 2,000 and then it says I have a $7,292 465 (d) carryover. I know I didn't report a loss that size last year either? I don't want to be audited for this and I don't know how to fix it.

[DaveF1006]

Section 465 (d) carryover is the amount of loss you weren't able to take last year and may be able to take this year.  it is usually a passive loss carryover for disallowed losses from a previous year for rental property losses.  Did you report rental property last year and had a disallowed loss? 

@vivianrose84 

[vivianrose84]

No, I don't own any rental property, and I have no idea how I ended up with a $7200 loss. I don't remember ever claiming one. Most of my taxes are 1099s from various clients (simple and easy, like a W2). My other business is reselling. I used to do a lot more income with that business, but the last few years it's been harder to make money at it and I was making more on my other business. Still, I wasn't in the negative.

[MonikaK1]

You might try revisiting your entries for your business for this year, to make sure you didn't identify any of your investments as not at-risk. Check your last year's return to determine whether you had a loss from your Schedule C business that wasn't deducted. Investment funds not at-risk include:

• Non-recourse loans used to finance the business
• Cash, property, or borrowed amounts used in the business that are protected against loss by a guarantee, stop-loss agreement, or another similar arrangement (excluding casualty insurance and insurance against tort liability).
• Amounts borrowed for use in the business from a person who has an interest in the business, other than as a creditor.

Section 465 (d) carryover refers to the at-risk rules of Section 465 of the Internal Revenue Code. If you identified in the Schedule C interview that any of your investment was not at-risk, this would prevent a net loss from being deductible in the current year and being carried forward.

See the IRS instructions for Form 6198 for more information.

See also IRS Publication 925 and this TurboTax tips article for more information regarding the at-risk rules.

You can preview your return before filing to review the forms that TurboTax has prepared from your entries and to find out how your taxes were calculated. See here for details. 

[C-Money]

Be very careful reporting business losses repeatedly.  If you report a Schedule C business loss for the same entity in more than 2 out of the past 5 years, you are likely in for quite a treat from IRS.  Search "Hobby Loss" rules.