NOL carry forward election on 2024 taxes

[nkagalwala]

Hello ,

   I have  2 rental properties with NOLs starting all the way back from 2005 and accumulating up until the past 2-3 years. It appears over the past 2 years my NOLs are not being applied against my rental income.  I was told that I should check and fix my NOL election so that the NOLs can be applied against my rental income in my 2024 and past returns. How do I make this election in my 2024 return ? I do not remember making an election in any of the prior years or being asked in TurboTax. I have been using TurboTax for over 20 years. 

[Mike9241]

there is no NOL election specifically for real estate. Since the losses were passive (you're not a real estate professional) the amount allowed/disallowed each year would be computed on form 8582. It's automatic so you need to review those forms for the past years because if your Modified adjusted gross income was low enough, some or all of those losses may have been allowed. disallowed amounts should have carried forward in Turbotax.  We do not know if you had true NOLs which would generally be if you adjusted gross income was negative.  

the tax laws on NOLs varied over the years so it's not possible to assess your situation.  at one point true NOLs had to be carried back, if possible, unless an election was made to carry it forward. Starting in 2021 true NOL's could only be carried forward and thus no election was needed.  

[nkagalwala]

Hello Mike9241,

 Thank you for your response. You are correct, I was actually referring to passive activity losses carried over from previous years.  I don't have any NOLs.  My overall adjusted gross income has never been negative in any year. My MAGI has been too high for many years to be able to utilize any of the PALs, so I know that they haven't been exhausted. I still show about ~250K in PALs on Federal Form 8582.

Upon further investigation, it appears that somewhere along the past few years my PALs on California Form 3801 got lost in TurboTax and were not getting carried over. I am trying to track down where they got lost. 

For the past 2 -3 years or so, ever since I started having positive rental income, the problem I have been encountering is that after entering rental income, as I start entering rental expenses my federal taxes due actually go up and conversely state income taxes due go down. Similarly, when I remove the rental expenses, CA tax liabilities due go up and federal liabilities go down. This should not be happening because I have enough PALs (~250K) from previous years.  So, my state & federal income tax liabilities shouldn't have been affected either way. The current income should simply have been offset against past losses. I am still trying to resolve this.

Part of the puzzle seems to be that the PALs for CA on 3801 are not being carried over. I spoke to a TurboTax and that person suggested I put it into 3801 directly to offset CA income.

The federal part I cannot understand for the life of me. Any help or insight is appreciated here.

An accountant I recently visited suggested I look into election of NOLs and the possibility that they were not getting used due to not being elected, but that appears to be misguided, since I am dealing with PALs.

[Mike9241]

I can't help with California. For Federal it's possible for those taxes to go up after entering rental income but before entering rental expenses. It all depends on what other income and expenses have been entered. If you were using the desktop version, you could view your return line for line before entering the rental info and then see what changes as you entering the rental data.