topic Maryland passive loss carry forward on disposition of rental property in State tax filing

Maryland passive loss carry forward on disposition of rental property

CliffTT — Mon, 29 Mar 2021 14:13:18 GMT

I sold Maryland rental property in 2020 with a basis loss and federal passive loss carryovers. For my Maryland taxes, TurboTax is adjusting my income to eliminate recognition of the passive loss balance.

I assume this is incorrect and have asked MD for an opinion. Am I missing a checkbox in TT?How do I properly eliminate this adjustment?

Re: Maryland passive loss carry forward on disposition of rental property

ThomasM125 — Mon, 29 Mar 2021 21:01:24 GMT

The carryover rental passive loss would be reflected on line 22 of your schedule E and as such result in an allowable rental loss for the year as reported on line 8 of your form 1040. That number would flow down to your adjusted gross income on line 11 of form 1040.

On your Maryland tax return, the federal adjusted gross income would appear on line 1 of form 502, and as such the loss would reduce your Maryland taxable income. So, I think you may have entered the passive rental loss carryover incorrectly on your federal tax return.

Re: Maryland passive loss carry forward on disposition of rental property

CliffTT — Mon, 29 Mar 2021 21:23:12 GMT

You are describing what I would expect to happen for federal and Maryland.
My federal passive losses are allowed on Schd E and reduce my income on my 1040 and the Maryland 502. But the Maryland adjustment line adds the passive loss to my income. Should the adjustment be eliminated and how?

You say that I misentered on the federal form but I only see one way to enter rental losses.

Re: Maryland passive loss carry forward on disposition of rental property

ThomasM125 — Mon, 29 Mar 2021 22:19:09 GMT

I entered a passive loss carryover in TurboTax to see how it was handled on the Maryland return and it did not adjust it. So, I suggest you revisit your Maryland return entries and review the income section to see if there is an adjustment there that doesn't belong and delete it.

Re: Maryland passive loss carry forward on disposition of rental property

CliffTT — Wed, 31 Mar 2021 02:25:43 GMT

I entered a second asset to see where it differed in passive loss carryovers. The key entry was on the Property Profile; Do any situations apply; Carryover of Passive Losses. When I entered a passive loss, it populated that property's Schd E worksheet as a passive loss. For some reason, the first (real) asset's passive losses that were brought over from a prior year Form 8852, did not populate the worksheet. Manually entering the losses on the worksheet solved the problem.

I'm now able to file, but still haven't figured out what caused the omission on the worksheet. I suggest TT flag differences in these entries as a warning when an asset is sold.

Re: Maryland passive loss carry forward on disposition of rental property

Steve W CPA — Wed, 03 Nov 2021 05:49:13 GMT

Since you sold your property, and since you indicated that you had prior year passive activity losses (PAL's), you need to indicate that you have disposed of the activity. This will remove the activity from the 8582 (which exists only to calculate limitations on your PAL's). All previously suspended (deferred) PAL's from that activity will be allowed in the year of disposition -- for both federal and state purposes.

Re: Maryland passive loss carry forward on disposition of rental property

Critter-3 — Thu, 04 Nov 2021 15:33:43 GMT

Agreed ... prior year passive losses are released in the year of sale on the Sch E in full. This is the correct why to handle it ... the 8582 is no longer needed for THAT property.