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Losses wrongly zeroed out in PA-40 Schedule E? --Never mind, user error

I leave this thread up as a reminder of my stupidity. Maybe others will benefit. This issue stems from mistakenly identifying an in-Pennsylvania property as not-for-profit, which then disallows losses.

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There appears to be a problem with the TurboTax Pennsylvania Schedule E form calculation, in that it zeroes out any losses without allowing them to offset gains from other properties, even on the same page. This is a longstanding issue, as I see the same behavior in returns from 10 years ago. If this is a bug then it has cost me into the thousands of dollars. I can only file amended returns for the past two years to recover the tax overpayments.

 

I found and commented on a couple other posts that appear to touch on this behavior, here and here. In each case there's distraction about losses in one category of income not offsetting income in a different category, and the fact that losses don't carry forward. The issue here is that if you have two rental properties then the loss from one should be able to offset the gain from another in the same year. TurboTax is not allowing this. Instead it automatically sets the loss fields to zero for any property showing a loss. If this were somehow intended in the tax code then there would be no point in even having a separate line item for losses. In fact all the loss checkboxes on the form would be unnecessary because it would be impossible to have a loss. Further, the official instructions for Schedule E say nothing about zeroing out losses.

 

Here are some sample numbers I posted previously, with entries for three properties:

Line 1 Rent received: 8,000  15,000  11,000

Line 18 Total expenses: 7,000  10,000  18,000

Line 19 Income: 1,000  5,000  (blank)

Line 20 Loss:  (blank)  (blank) 0

 

That last number should be 7,000, not zero, and the loss box should be checked.

Line 22 should indicate a loss of 1,000, not a gain of 6,000. In this situation TurboTax is improperly increasing taxable income by $6,000. This is distinct from the fact that the correct $1,000 loss cannot offset income from other categories.

 

I would like either a definitive acknowledgement that this is a bug, or alternatively a concise explanation of why it's not, including references. Because of the dollar amounts at stake I will be pursuing this until I have a full understanding.

@DianeW777 

@PattiF 

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5 Replies

Losses wrongly zeroed out in PA-40 Schedule E? --Never mind, user error

Here's an underlying bit of the tax code, emphasis mine:   ref

61 Pa. Code § 401.12 - Losses

Losses incurred in the operation of a business may only be used to offset gains from the operation of a business in the year during which the loss was incurred. Losses incurred in the operation of rental property may only be used to offset gains from the operation of rental property in the year during which the loss was incurred. Capital losses, whether long or short term, may only be used to offset capital gains for the year during which the loss was incurred.

Losses wrongly zeroed out in PA-40 Schedule E? --Never mind, user error

Official instructions for 2022 PA Schedule E, emphasis and italicized statements are mine:   ref

LINE 18 (expenses)

Add the amounts on Lines 3 through 17 and enter the result for each property.

LINE 19 (income)

If Line 18 is smaller than Line 1 (rent received) or Line 2, subtract Line 18 from Line 1 or 2 and enter the result for each property.

LINE 20 (loss)

If Line 18 is greater than Line 1 or Line 2, subtract Line 1 or 2 from Line 18 and enter the result for each property and fill in the oval. (TurboTax is not doing this!)

LINE 22 (net income or loss)

For all properties answering “No” to Section II, Line c, add the amounts for Line 19 and 20. If a net loss, fill in the oval. (impossible to have a net loss in TurboTax!)

Losses wrongly zeroed out in PA-40 Schedule E? --Never mind, user error

For agents wanting a look at my 2022 return, the token is 1139733.

Losses wrongly zeroed out in PA-40 Schedule E? --Never mind, user error

Preliminary confirmation from one of the experts that this appears to be a TurboTax bug.

Losses wrongly zeroed out in PA-40 Schedule E? --Never mind, user error

Based on my old returns it appears this problem began between tax years 2012 and 2013. The calculations were performed correctly in 2011 and 2012, but not in any year since then.

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