I am claiming unused passive losses from a publicly traded MLP in my federal taxes. How do I claim them also in state level tax filings?

[MLP_Banana]

I have owned a Master Limited Partnership for seven years.  It produced negative K-1 Box Business Income from 2015-2021.  In 2022 it produced positive taxable K-1 Box 1 Business Income in five states.

On my federal return this positive 2022 K-1 Business Income appears on the Schedule E as passive income.  The MLP lost more money from 2015-2021 the MLP earned in 2022.  Therefore, I have unused passive losses from this MLP which are larger than the 2022 passive income.  On Schedule E my unused passive loss results in the 2022 Business Income being netted to zero, and on my federal 1040 line 8 “Other Income” I have a zero.

My 2022 K-1 from this MLP has a State Schedule.  The State Schedule indicates I have positive Business Income sourced in five states.  However, when I use Turbo Tax state software to generate the tax filings for these states it reports zero Partnership Income in each of the five states.  For each state Turbo Tax pulls down the zero from the federal 1040 line 8, and then calculates the percentage of that zero which is allocated to the state.  Since the starting federal line 8 income is zero, the resulting partnership income in each state is also zero.

I am curious if this is the proper way to report my unused losses for each state?  If I follow Turbo Taxes output I will file in each of the five states with 2022 state tax forms that say I received zero partnership income in that state.  However, the partnership will be filing partnership level tax forms which say in 2022 I have positive Business Income in the state.

Does anyone know where in Turbo Tax ON THE STATE LEVEL I can claim my unused passive losses from 2015-2021?  Turbo Tax enters these unused passive losses on the federal level in federal Schedule E, but I don’t see any way to enter my unused passive losses on a State level in Turbo Tax state software. 

Is it proper to claim unused passive losses on the federal level and net my 2022 partnership taxable income to zero on the federal level, and then just report zero 2022 partnership income in each state?  This method is accurate, but it fails to explain to each state why I am reporting zero taxable partnership income while the partnership level return is reporting that I do have positive income?

The five states are Illinois, Nebraska, Missouri, Kansas and Oklahoma.

[Mike9241]

if one is your resident state it won't matter because (you are taxed on all the net income subject to reduction for any passive loss carryovers for that state) the taxable amount should flow automatically.  for the non-resident states, you PROBABLY should have filed non-resident state returns every year to report that state's income/loss.  each state has different rules so any loss carryover that would be allowed would be different than the federal.

there is probably a k-1 associated which each state. on the non-resident states you would enter that state's income for the year.  check each state's filing instructions since the income may be below the filing requirement. what to do about those unreported years is up to you.

[GeorgeM777 · Accepted solution]

Yes, it is proper to use your federal carryover passive losses to not only offset your federal passive income but also to offset any state tax liability.  State returns generally begin with the amounts reported on your federal return, and then various adjustments/credits are made pursuant to state law to the amount you reported on your federal return.  Below is a list of the states you mentioned in your post including snippets from each state's taxation/revenue website that relate to the issue you have raised.  These snippets underscore the fact that the states all begin and rely on what has been reported on your federal return.  

Illinois - Your Illinois income includes the adjusted gross income (AGI) amount figured on your federal return, plus any additional income that must be added to your AGI. Some of your income may be subtracted when figuring your Illinois base income. For more information, see the Step-by-Step Instructions.  You should follow the federal law concerning passive activity income and losses. You are not allowed to refigure your federal passive activity losses.

Kansas - Kansas residents and nonresidents of Kansas earning income from Kansas sources are required to annually file an income tax return, K-40. Kansas income tax conforms to many provisions of the Internal Revenue Service.  You will need to complete your federal income tax return prior to completing your Kansas K-40. 

Missouri - Regardless of where your income was earned or if you are using Form MO-CR or Form MO-NRI, you must begin the Missouri return with your federal adjusted gross income, as reported on your federal return. 

Nebraska - Federal Adjusted Gross Income (AGI). This is the amount reported on your federal return as AGI. Enter the amount from Federal Form 1040 or 1040-SR, page 1, line 11...Nonresidents and partial-year residents must include your total federal AGI on line 5, Form 1040N, not just your Nebraska source income. When completing Nebraska Schedule III, you will report Nebraska income and apportion your tax liability based on a calculated ratio of Nebraska income to total income.

Oklahoma - Complete your federal return, then enter all income items and federal adjustments exactly as entered on your federal return.

@MLP_Banana 

[MLP_Banana]

The five states which earned me MLP K-1 Business Income in 2022 are not my resident state.  

"each state has different rules so any loss carryover that would be allowed would be different than the federal."

I understand this issue of calculating state level passive loss carryover information, but I am not seeing anything in Turbo Tax's various state tax software packages that  allows me to create "publicly traded partnership passive loss carryover" worksheets for the five states.  For all of the states, Turbo Tax doesn't have any "manual entry" of passive partnership Business Losses.  For each state the Turbo Tax state software just takes the federal partnership passive income from my 1040, and that number is zero (since federal Schedule E used up my unused 2015-21 losses to net the 2022 passive income to zero).  

To your knowledge, do any Turbo Tax state software packages have the ability to calculate publicly traded MLP passive loss carryover worksheets?  If so, how do I "launch" that process in Turbo Tax?

"there is probably a k-1 associated which each state. on the non-resident states you would enter that state's income for the year."

Does Turbo Tax state software packages have this "manual entry" of state K-1 information?  In the Turbo Tax state software question and answer section, how do I launch the program that would allow me to enter a state level K-1?  I don't see that feature anywhere.