Do I need to amend due to improper passive carrover loss in my california state return?

[whodiini]

I got bit by a 2020 bug in Turbotax whereby the passive carryover loss on a rental property was not transferred from my federal return to my california state return.  I checked the 2020, 2021, 2022 returns and the passive carryover loss, while wrong, did not impact the amount of tax due, in he CA state return (federal returns were correct).  Now I will fix that for my 2023 return and enter the correct total carryover loss in my california state return so 2023 CA state return will have the correct passive carryover loss amounts.  My question is since there is no changes in tax due, can I just submit the correct 2023 CA state return, or do I need to amend the 2020, 2021 and 2022 california returns even though there is no change in tax due?  

I am a bit irritated that Turbotax does not notify users of bugs and when they are corrected and leave it to the poor users like me to find out years later!  The only way I found out was doing a search and discovering that this bug occurred in the 2020 version of Turbotax.

[Vanessa A · Accepted solution]

My question is since there is no changes in tax due, can I just submit the correct 2023 CA state return, or do I need to amend the 2020, 2021 and 2022 california returns even though there is no change in tax due? 

It depends.  If you did not have your loss transferred to CA and wanted to use it for any year in the future, including the 20, 21 or 22, you would need to amend your return for each of the years.  In order to include the carryover, it has to be listed on each of the prior years return carryover sheet, as it must be matched against the income in chronologically.  So, if even if you couldn't have used it on your 21 return, but you could have on your 22 return, you would need to list it on your 21 return so it can be used on your 22 return and any years going forward.  You cannot decide to just use it on your 23 return without showing that it couldn't be used on previous returns. 

If you used it up or have no desire to ever use it in the future, you would not need to amend your returns 

Capital Loss Carryover

Amend Your Return

Passive Activity Loss Limitations

[whodiini]

Actually slightly different.  What did not get transferred over correctly was the depreciation taken up to that year.  That in turn messed up the depreciation from that year on (increased amount), which then messed up the passive loss carryover (too much).  So it is in my favor.  Sometime several years into the future, if I didnt correct it, then I would be paying too little tax.  So my thinking was to just correct it for 2023 and then if the tax board came after me, I would tell them that I am paying more tax than if I hadnt corrected it!  (They either have to accept it or refund me money).

Is this too naive?  I think I will just submit the amended paperwork so there are no questions in the future....

[Vanessa A]

It is always better to correct the error.  If you somehow accidentally took the carryover loss after it should have been all used up, you would be subject to interest and penalties for that year and potential fraud issues due to knowing and not fixing the problem when you found it.  So, yes, if  the error is in your favor, it is definitely better to correct the error.