BUG? - PA-40 Schedule E rental loss - TurboTax vs PA MyPATH

[carey123456]

2022 TurboTax Premier bug?

I live and work in Maryland, but have rental properties in Pennsylvania with a net loss this year.  Turbo tax appears to ignore the loss on 1 property and indicates I need to pay tax on the income from another property... but I have a net loss for all rental properties in PA.  When I submitted the same information via the PA Department of Revenue site (PA MyPATH), Pennsylvania recognizes the rental property income loss collectively... and indicates I do not owe taxes ... conflicting with TurboTax which indicates I owe taxes due to the 1 property with positive income (ignoring the loss for all properties in PA).  I have validated that the PA-40 Schedule E inside of TurboTax does not recognize the loss (line 20) for the property with a true loss for this year.

How do I report this bug to TurboTax?

Thanks!

[PattiF]

Please send a diagnostic copy of your tax return so that we can help with the problem that you are having with the  loss on your rental properties. I would like to take a deeper look at this. 

TurboTax Online:
 

1. Sign into your online account.
2. Locate the Tax Tools on the left-hand side of the screen. 
3. A drop-down will appear. Select Tools  
4. On the pop-up screen, click on “Share my file with agent.”
5. This will generate a message that a diagnostic file gets sanitized and transmitted to us.
6. Please provide the Token Number that was generated in the response.
    

TurboTax Desktop/Download Versions:
 

1. Open your return.
2. Click the Online tab in the black bar across the top of TurboTax and select “Send Tax File to Agent”
3. This will generate a message that a diagnostic copy will be created.  Click on OK and the tax file will be sanitized and transmitted to us.
4. Please provide the Token Number that was generated in the response.  

[carey123456]

Thanks for the reply!  The token number is 1057958.

[PattiF]

We are working on this and will get back to you tomorrow. Thanks!

[PattiF]

Your tax return is correct. Your joint income of over $150,000 doesn't allow for any loss from the rentals to be used to reduce your income at this time. The loss was used to reduce the rental income to $0.

You have a passive loss carryover that is created when you have more expenses than income (a loss) from passive activities that could not be used this year. Instead, the passive loss is carried forward to future tax years to offset any passive income. The loss continues to be carried over until you use up the entire amount.

Passive Loss Carryovers can be created by any passive activity. Most come from rental properties (Schedule E).  The Passive Loss Carryovers is on Schedule E Wks - Carryforward to 2023 Smart Worksheet (final page - note this is a TurboTax supplemental schedule and not an IRS form). You can see that in Forms View

If you had more than one property, or you didn't use TurboTax last year, Passive Loss Carryover appears on Form 8582 Page 2 Section VIII Allowed Losses.

The loss will be carried forward until you are able to use it on your tax return. This can occur if your income drops below $150,000 for Married Filing Jointly. All of the unallowed (suspended) losses will be used when you sell the property.

Please see IRS Publication 925 for more information.

[carey123456]

Thanks, Patti!  I agree that the loss does not reduce my income.  However, as I need to file taxes in Maryland and Pennsylvania... who do I pay the tax to?  If I use TurboTax's methodology, it indicates I need to pay $55.00 to Pennsylvania (and $55 less to Maryland).  However, if I "correctly" (manually) fill out the PA-40 Schedule E according to the form directions, then I do not owe $55.00 in PA taxes (instead of paying the $55 to Maryland) - consistent with the Pennsylvania Department of Revenue online filing with PA MyPath which indicates I do not owe any state tax to Pennsylvania due to the loss. 

My question at hand... which state do I owe $55 tax to related to the rental property loss?

Thanks again for your insight!

[RobertB4444 · Accepted solution]

You are correct that you should adjust the PA-40 to show the total loss in Pennsylvania.  You shouldn't have to pay the $55 to PA.  

@carey123456

[carey123456]

Thank you, @RobertB4444 .  I appreciate your advice.

[catance]

Have you guys looked further into this problem? My TurboTax for Mac appears to be messing up the PA-40 Schedule E calculation, changing rental losses to zero so they don't offset the gains of other properties, even on the same page. Can you confirm that this is a bug? If it is it has been going on for over 10 years and has cost me thousands of dollars. Clearly I have to pursue this until it's clear what's going on.

[JosephS1]

Can you please send me a token for your return to check what has been stated by you and others?  I am a PA CPA and yes a rental property loss should be allowed to offset rental property income.  I would need additional information to submit for a TurboTax investigation as to why this is happening and to recommend correction.  Be assured that no personal information is included in the diagnostic copy. Just the data entries.  For us to receive the diagnostic copy we need you to follow the following steps if you are using TurboTax online (I will list the steps for TurboTax desktop below):

1. Sign in to your TurboTax account in a browser
   • If you are using the TurboTax Mobile app, you must sign in to TurboTax.com from a browser (on your phone or other device) instead
2. Open or continue your return
3. Select Tax Tools, and then Tools
4. In the Tools Center pop-up, select Share my file with Agent
   • You will be notified that all personally identifiable information (PII) is being removed
5. Note, and best to write down the seven-digit token number that appears
   • Relay this token number to us
6. Select X to close the Tools Center pop-up

If you are using TurboTax desktop, please use the following steps:

1. Switch to interview mode in TurboTax
2. Go to any screen except the Welcome screen
3. From the menu, select:
   • Online if you are on a PC
   • Help if you are on a Mac
4. Select Send Tax File to Agent
   • You will be notified that all personally identifiable information (PII) is being removed
5. Note and best to write down the seven-digit token number that appears
   • Relay this token number to us
6. In the pop-up, select Send to save a copy to your computer.

Once we receive this, we should be able to look closer at the issue you are having and hopefully come to a resolution.

@catance 

[catance]

Thanks Joseph,

I'm talking to support now and will transmit the forms when done unless they say otherwise.

I made a new thread with a more complete writeup here.

[catance]

@JosephS1 

The token is 1139733

[catance]

Although the issue isn't resolved yet, kudos to Intuit for the support so far. I wasn't expecting to get a live person the day after Tax Day, but I got through in a couple minutes, and Maria spent a good two hours on the phone with me. Unfortunately technical problems prevented screen sharing most of the time, but I appreciate that this is being investigated.

[JosephS1]

I hate to admit this but I could not find a reason for the rental loss to not be included in the net rental income based on original entries.  The only way I could get it to work is to use the desktop version of TurboTax Home & Business and overwrite the "zero" in the rental property loss column and place the checkmark indicating a loss for that property.

If you are using the online version of TurboTax you will not be able to perform the overwrite as I have.  If you are using the desktop version the following screenshot shows the screen with the overwrite.  To overwrite, click on the Forms icon towards the top right corner of the screen.  The forms pertaining to your return will show in the far left column.  Scroll down to the PA area and click on Schedule E, Copy 1.  Click on the "0" on line 20, column C, then click at the top under "Edit", then "Override" and type over the zero to input the loss of $5,942 and put the checkmark in the box just under it indicating a loss.

I must warn you that by overriding the computed value listed, even if wrong, will invalidate the TurboTax accuracy guarantee.  This should not apply to the Federal version but just PA.  Of course you have an argument that you believe the number originally calculated was incorrect but there is always the possibility of needing to mitigate the situation.

 I have enlisted the assistance of higher ups to add this to the investigation que as this does not appear to be a single incident occurrence.  

@catance 

[catance]

Thanks Joseph,

That's exactly the workaround I was planning to use if this turned out to be a TurboTax bug, which based on your input seems increasingly likely. I'm of course dismayed that I have 10-15 years worth of such errors adding up to a pretty decent sum. Multiply this by hundreds, if not thousands of other affected TurboTax users and it's not a pretty sight. The problem is that with the automatic transfer of data from the Federal form there's reduced incentive to carefully inspect the state form. With a superficial review you might just assume it's some other state/federal difference. Such a blatant error is not expected. It was just by accident this time that I started wondering why the offset wasn't allowed and started digging into it.