How do I resolve this error a Section 1256 Contracts and Straddles from a K-1

[poncho_mike]

This is a little odd, but yesterday I was working on taxes and had no errors.  I was getting ready to print taxes this morning, and now I have an error.

I have a $ 711 loss from Section 1256 contracts and straddles sales from a K-1.  It transfers to that section, but now it is asking a question on Form 6781 that I don't know how to answer.

I checked Box D.  The K-1 reports a Box 11 value of -711 and a ZZ code of -82.

How do I determine the amount of loss to be carried back?

[Mike9241]

what's 11ZZ?  that could be anything

as for 1256 loss carryback, there is no requirement to c/b the loss that's for the taxpayer to decide provided they qualify. the loss c/b may be limited and is first carried back to the 3rd prior year

form 6781 instructions

The amount you can carry back to any prior year is limited to the smaller of:
• The gain, if any, that you would report on line 16 of Schedule D (Form 1040) for that carryback year if only gains and losses from section 1256 contracts were taken into account; or
• The gain, if any, reported on line 16 of Schedule D (Form 1040) for that carryback year.
The amounts just described are figured prior to any carryback from the loss year. Also, the carryback is allowed only to the extent it doesn’t increase or produce a net operating loss for the carryback year. The loss is carried to the earliest year first.

[poncho_mike]

Line 13, Code ZZ:  Other deductions – Trader expenses. For individuals, combine the values from lines 11zz and 13zz to determine whether you have a nonpassive income or loss. Reported on Schedule E, Line 28, (i) or (k).

My Box 1, 2, and 3 income was $ 0.  

[Mike9241]

11zz has nothing to do with section 1256 c/b 

[MODS] there's a bug in Turbotax desktop. In step-mode, there is no subscreen/dropdown to detail where the amount on line 11ZZ on a partnership K-1 goes. The only place you find out there's a problem is in final review 

for OP the 11ZZ amount would need to be entered on line1 of the subschedule for the amount.  OP, if you're using a desktop version you can go into forms mode, then to the k-1, and finally on line 11 click on the quickzoom link. to enter  11ZZ on line 1 of subschedule. decription - as given trader expenses.

[poncho_mike]

@Mike9241 I think I'm more confused that when I started.  

My K-1 instructions tell me to combine the value for line 11zz (-82) with line 13zz (5).  Since Line 11zz is Other income and Line 13zz is Other Deductions, is the result -87 or -82?

Would the carryback year be 2020?  What is that line is negative?  I'm not sure how carryback works.

[fanfare]

Carryback involves amending two prior tax years.

If you are not familiar, you don't want to do that so don't let it confuse you.

@poncho_mike 

[Mike9241]

you have a choice on the Turbotax k-1 you can enter a net of -82 on 11ZZ  or on 11ZZ -87 and on line 13ZZ 5

I use desktop and there's a bug because in step mode it does not ask where the amounts on those ZZ lines go until I get to final review (should be line 28 page 2 of schedule E) your version may work differently and if you have a desktop version you can go into forms mode and use the quickzoom links.

the work-around is either to contact support if your version has that feature or just enter -82 on line 1 and skips lines 11 and 13 ZZ

first do you really need to carryback the 1256 loss. this is an option not a requirement.  It could even be meaningless if you get full tax benefit from the loss in 2023. 

the carryback requires filing an amended return for each prior years affected.  for info check out Turbotax info for amending return. 

on line 6 of the 6781 for 2023 you would enter as a positive number the amount you are carrying back. 

a Section 1256 loss would first be carried to 2020, the 3rd prior year, but you have to manually check 2020 for the limitation which is the smaller of the net 1256 gain (see line 7 of form 6781) reported that year or the positive amount, if any, on line 16 schedule D.

if the amount is limited you do the same for 2021 but again the limitation applies and you can only use any remainder left from 2020. the same rules apply to 2022.

[poncho_mike]

I think I understand now.  I normally have a gain on my K-1 from Section 1256 contracts.  This year I have a loss.  I can carry it back and spread it over previous years by amending my tax returns.   By unchecking Box D, I gave up the option of going back and getting a refund by spreading the loss to earlier years, and the error goes away.

I think I understand your statement about combining numbers.  When I input my data, I can enter a -87 on line 11zz.  Or I can combine 11zz and 13zz and enter -87 for line 11zz.  Is there a reason to combine them?

Thanks for your help.  I get no errors now. 

[Mike9241 · Accepted solution]

the instructions you presented say the 11 and 13ZZ should be combined and reported on schedule E line 28. so you can enter 11 and 13 separately and the link each to the form or do a net entry on 11 which would require only 1 linking. in either case the net result should be the same.

the error on the 6781 may be due to the fact that if c/b is elected, the amount of the carryback must be entered on line 6 of the form as a positive number.  it can't be left blank but can be any number up to the current year 1256 loss.