Carryover of Passive Losses on form 8582 in Hawaii Non-Resident Tax Form N-15

[ulalena]

We live in California, and have rental properties outside as well as inside Hawaii. When we file form N-15 (Hawaii Non-Resident tax return), we properly mark all non-Hawaii properties as being outside Hawaii with 0 income so that they don’t participate in any income calculations.

In 2025, we had $36800 loss from our Hawaii properties and $22500 gains from our non-Hawaii properties. We thought that none of the $22500 non-Hawaii gains would count for Hawaii non-resident taxes, and all the $36800 losses from Hawaii properties would carry over to 2026. But we see that the federal form 8582 is attached to the N-15, where $22500 non-Hawaii gains are listed as allowed in 2025 and they offset the $36800 Hawaii losses.

Why doesn’t Turbo Tax remove the non-Hawaii properties from 8582 and doesn’t carry forward all our 2025 Hawaii losses? We use 2025 Turbo Tax Home and Business.

Thank you!

[PatriciaV]

Have you completed the Hawaii state interview? There are many questions that allow you to zero out income from sources outside Hawaii.

Also, be sure you have checked the box under Enter Your Hawaii Business ID# to indicate that your non-resident businesses did not operate in Hawaii. Then enter zero for Hawaii Gross Receipts.

If you answer these questions correctly, you should see a loss on Line 16 of your Hawaii N-15.

[ulalena]

Hi Patricia,

Thank you for your reply! We completed the interview, checked the boxes for properties that do not operate in Hawaii and entered zeros for the gross receipts for those properties. We have a correct loss on Line 16 of our Hawaii N-15 ($36800).

My question was about the carryover amount to the next year, which I thought was to be calculated on form 8582. I would think that if in 2025 we lost $36800 from our Hawaii properties, then next year we would be allowed to write off up to $36800 of the 2026 income. But Hawaii doesn't have it's own 8582, and Turbo Tax includes the federal 8582, which offsets the $36800 Hawaii losses with $22500 non-Hawaii income. Does it mean that we are losing the full carryover of $36800 and will only have $36800 minus $22500 = $14300 as a carryover loss for 2026?

[PatriciaV]

Your passive carryover loss should be reported on the Activity Worksheet for the rental property under the Hawaii forms. Line 7 reports Passive disallowed loss (carryover to next year).

Since your federal return uses the Hawaii rental losses to offset other income, you won't have a carryover loss on your federal return next year. But the disallowed passive loss can be used on your Hawaii return in the future when you have passive income.

[ulalena]

Hi Patricia,

Thank you, I am seeing the line 7 on the Activity worksheets for our properties, and for each of the Hawaii properties it's less that the losses this year.

I still don't have the answer for my original question: We had $36800 losses from Hawaii properties in 2025. Why doesn't the whole amount of $36800 carry over to the next year? Is it correct that on N-15, Hawaii losses get offset by non-Hawaii income and as a result only 1/3 of our 2025 losses for Hawaii properties carry over to the next year? We are paying no taxes to Hawaii for 2025, but we also don't receive any tax refund, so we would expect all the $36800  losses to be carried forward on Hawaii N-15. Why is it not so?

[CatinaT1]

Since you are using the Home & Business Desktop version, you can fix this manually in Forms Mode:

1. Click the Forms icon.
2. In the left-hand pane, look for the Hawaii section and find the "Rental/Royalty Activity Worksheet" for each of your Hawaii properties.
3. Look for a section titled "Hawaii Passive Activity Loss" or "Hawaii Carryovers." 
4. You need to ensure the "Hawaii Allowed Loss" for this year is $0 (since you have no Hawaii passive income) and the "Hawaii Disallowed Loss" (which becomes the carryover) is the full amount of your Hawaii loss.
5. Check for a worksheet called "Passive Activity Loss Limitation Worksheet" specifically for Hawaii. If it exists, you may need to manually enter the Hawaii-only income/loss figures there to force a Hawaii-source-only 8582 calculation.

Once corrected, look at your Form N-15, Page 2, Line 16 (Column B). It should show $0 (or a very small amount if you qualify for the $25,000 special allowance for active participation). The remainder of the $36,800 should show up on your Hawaii "Carryover of Form 8582" worksheet for next year.

[ulalena]

Hi Catina,

Thank you for your explanation, but I need more help.

You wrote:
"You need to ensure the "Hawaii Allowed Loss" for this year is $0 (since you have no Hawaii passive income) and the "Hawaii Disallowed Loss" (which becomes the carryover) is the full amount of your Hawaii loss."

I believe that the root cause of the Hawaii Allowed Losses being not zeros is that ALL our properties have the Activity Worksheets, including the non-Hawaii properties with income. That non-Hawaii income of $22500 flows into the form 8582, and the allowed Hawaii income gets calculated based on that non-Hawaii income. On Form 8582, Part VII, they divide each Hawaii condo loss by total loss, getting the percentage. Then they multiply the non-Hawaii income by that percentage and it becomes the allowed loss for that Hawaii property in 2025.

Is it correct to calculate the allowed Hawaii losses based on non-Hawaii income? I believe it isn't, but I don't know how to exclude the non-Hawaii income from the calculations without getting in trouble. The Activity Worksheets gets populated from our federal Schedule E, then 8582 is based on them. I tried to override the Allowed Loss with 0 on each activity worksheet, it makes the 0 red. Do I also have to change the income for non-Hawaii properties to 0? If I don't do that, the income gets used in the calculations and we are back to where we started.

Please advise!

[CatinaT1]

TurboTax is using Form 8582 which sees your total income, but Hawaii requires a Hawaii-only calculation for the N-15.

You need to make sure the income for non-Hawaii properties is $0 on the Hawaii-specific worksheets. Because TurboTax is seeing your $22,500 of California income on the federal side, it is allocating some of that income to your Hawaii properties to allow those losses. This is incorrect for the N-15 Column B.

Here is how to resolve this:

1. Since you are in Forms Mode, don't just override the Allowed Loss. You need to go one step upstream to the source of the calculation:
2. Find the Hawaii Activity Worksheets: Look at the Activity Worksheet for your non-Hawaii properties (the ones with the $22,500 gain).
3. Zero the Hawaii Column: Ensure that the Hawaii-source or Column B version of that income is $0. Even if the Federal column shows $22,500, the Hawaii column must be zero.
4. Check the Hawaii 8582 Worksheet: In your Hawaii forms list, look for a form titled "Passive Activity Loss Limitation Worksheet" (it may be labeled as a "State" version of 8582).
5. This worksheet should show Total Passive Income as $0.
6. If it shows $22,500, that is where you need to enter an override to change the Total Passive Income to $0.

When you manually change a calculated field in TurboTax, the number turns Red. Overrides (red text) usually prevent you from e-filing. You will likely have to print and mail your Hawaii N-15 return. 

Once you have zeroed out the non-Hawaii income on the Hawaii worksheets: 

1. Go back to the Activity Worksheets for your Hawaii properties.
2. The "Allowed Loss" should now automatically drop to $0 (without needing a red override on that specific line).
3. The "Disallowed Loss/Carryover" should now show the full $36,800.

By forcing the Hawaii-source passive income to $0, you are telling the Hawaii Dept. of Taxation: I had no passive income in your state this year, so I am not allowed to use any of my Hawaii losses yet. I am keeping all $36,800 in my pocket for next year.

[ulalena]

Thank you again for your instructions!

We tried to follow them, but there were too many places that needed to be changed. Overriding State income for non-Hawaiian properties with 0 on Activity Worksheet doesn’t change the numbers on different related parts of the form 8582. In addition, overriding the field not only prevents from e-filing but also voids TurboTax's 100% accurate calculation guarantee.

We found a different solution. In N-15 Activity Worksheets, Part II, line 2d is called “Other adjustments”. Google search returns that this field is used to account for differences between Federal and Hawaii tax laws that specifically affect passive activities. For all three of our non-Hawaii properties, we entered the negative number matching this property gain to offset it. As a result, Line 8 - Net profit or (loss) allowed – automatically becomes 0 and all related parts of form 8582 is automatically recalculated: allowed losses become 0, and Line 2b has the sum of losses from our Hawaii properties. And there are no red overridden fields.

Could you please confirm that this solution is valid? Thank you very much!