Why are my S-corp K-1's passive credits from 2020, 2021 and 2023 that were unallowed in 2025 not carried forward to 2026?

Forum|Forum|2 months ago
April 24, 2026
1 reply
746 views

Hello, I am a shareholder in a subchapter S corporation. The S corp's 2025 K-1 (1120S) distributed some passive credits in 2020 - 2022.

TT Deluxe (Windows desktop) did not bring these passive credits forward from last year's return, so I entered them on Passive Credit Entry Worksheet Form 8582-CR, and they appear on line 4b of form 8582-CR. Since I have no 2025 taxes generated by passive income, I cannot use those credits this year, TT properly computes $0 credit allowed on line 37 of 8582-CR.

What puzzles me is that the Form 3800 Part VI worksheet shows the credits but doe not carry them forward. Form 3800 Part VI has an three rows with entries correctly showing the originating tax year (column b), the pass-through entity EIN (column c) and the carryover before the passive activity limitations (column d). But the after passive activity limitation values are all 0, columns f, g and h are all blank, and so column i, the carryforward to 2026, (e + f) minus (g + h), is predicably 0.

If these passive credit have a lifespan of less than 3 years then I should remove all of them before filing. If not, what am I doing wrong that prevents them from being carried forward to 2026?

Many thanks,

jimmyinhmb

Monikak11

Level 2

The carryover of passive losses from the prior year return may not work automatically for all users. To get passive loss carryovers from a prior-year S Corp K-1 in TurboTax, enter the amounts by checking the box "I have passive activity losses carried over from last year" on the "Describe the Partnership" screen while working through the Schedule K-1 interview. This allows you to report prior-year disallowed losses (either from Form 8582 or Schedule E) to offset current-year passive income.

See here for another discussion of this issue.

jimmyinhmbAuthor

Level 2

@Monikak11, thank you very much for your reply and for the link to the other thread concerning passive losses. The K-1 I was writing about did have some passive losses carried over and in TY2025, and they were handled properly by TT. The issues I am wrestling concerns passive activity credits, not losses.

The TT experts that I spoke with yesterday concluded me that TT was not properly accounting for the tax credits that remained unallowed in TY2025. I was initially advised to override the entries in column (e) of 3800 part VI. This morning called back to suggest the override should be in Part IV, which flows to Part VI. The TT expert agreed. So the incorrect e zero entry in column (e) of 3800 Part IV was overwritten with the value of the remaining unallowed credits. The override allowed the rest of Form 3800 to show the passive activity credits being carried forward to TY2026.

I hope this will be useful for other readers, and I appreciate the time you took to reply.