Passive Activity Loss Limitations

[AlanH]

I have returned to TurboTax.  I was having a CPA prepare my taxes, but the cost got out of hand and my financial situation is not that complex.  I have a page from 2018's taxes  titled "Tax Return Carryovers to 2019".  The description is "Passive activity loss" with the Disallowing Form 8582 and Originating Form SCH E P2.  I found the amount on form 8582 on field 3c.  I also see it at the bottom of worksheet 5 - Allocation of Unallowed Losses and also on the Unallowed Loss column of Worksheet 7.  Can I do anything with it for 2019 taxes, and if so, where do I enter it?

[MinhT1]

To enter your passive loss carryover: 

1. In TurboTax, open your return
2. In the Search box on the top right of your screen, enter passive loss carryover, schedule e and click on Find at the right
3. In the search result box, click on Jump to passive loss carryover, schedule e
4. The program will take you to the Income from Rentals section. Answer Yes
5. Follow the interview until to get to the screen Do any of these situations apply to this property? (see attached screenshot)
6. Put a check mark next to I have passive real estate loss carried over from a prior year and click Continue

[AlanH]

Thanks for the response.  I don't own any rental property.  The name on the form is for a partnership that is listed as a passthrough.  The losses are listed on Income From Passthrough Statement Schedule E.  The amount is listed in the Prior Year Passive Loss and Disallowed Passive Loss column.  Is this even something that I can do anything with since it is listed in the "disallowed passive loss column"?

[ThomasM125]

"Disallowed" means that you could not deduct it in the current year. The partnership may have invested in rental property, that may be why the losses are passive. Also, if you didn't materially participate in the partnership, losses from ordinary business activities would be considered passive.

When you enter your K-1 from the partnership this year, you will see an option to enter the passive losses from the previous year, just click on that option and answer the questions.

[AlanH]

Thank you for your time.

All that I have from last year's taxes relating to this is a form titled "Tax Return Carryovers to 2019" and I find the listed amounts, a schedule E with the name and Employer identification number of the partnership, and form 8582.  I thought that I found the place to enter the K1, but I had to search the partnership by its Employer identification number for the address.  I never found the "Describe the Partnership" part of Turbotax that you attached.  I have looked through the paperwork from the two investment companies where I have money invested and I don't see the partnership name or the amounts.  I do not have a K1 from last year or this year.  I have no idea where it came from.  I think that I am just going to let the government have whatever I might have been able to keep from my $820 unallowed Passive Activity Loss.  If my CPA didn't charge me almost $400 to do my taxes last year, I would have let him continue to do it.  Hopefully, Turbotax will keep anything like this on file for next year. 

[Carl]

For your 2018 SCH E, do you have data on page 1 or page 2 of that SCH E?

If it's on page 2, the only way it got there is if you were issued a 2018 1065 K-1 (assuming you're owner of a multi-member LLC or Partnership).  Therefore, I would expect you to have a K-1 for 2019. If not, do you know why not? Maybe you sold or otherwise disposed of your interest in the partnership in 2018?

[BrianH7]

Does anyone know how TTX derives the numbers in Worksheet 3 of Form 8582 Passive Activity Loss Limitations?  There is just one entry in my Worksheet 3, and that’s for the Net income column for an activity.  Further drill down just provided information on how it might have been derived – there is no further trace.  I looked in the forms and worksheets TTX generated, but could not find any information on how it obtained that number.

[ldesposito]

This has NOTHING to do with the question that was asked . again!

[bvwest]

I own a condo that I rent full time and have incurred a passive activity loss for 2021.  I have also received a K-1 for 2021 showing passive income in excess of my rental losses.  Why will Turbo Tax not allow me to subtract my passive losses from my rental activity from my K-1 passive income?

[DianeW777]

It depends.  The passive activity loss limits are discussed below and they completely phase out if your income is too high. Also, be sure you answered the 'at risk' questions correctly.

• Most importantly the 'at-risk' question- I have money invested in this business that I'm not at risk of losing; that is, certain cash, property, or borrowed amounts that are protected from loss. 
  • If you are all at risk or liable for debt for your activity, then you should answer that you do not have amounts that are at risk.
• You can use this link to become more familiar with what 'At-Risk' really means: Is my investment at-risk?

Passive Activity Loss

Generally, the passive activity loss for the tax year isn’t allowed. However, there is a special allowance under which some or all of your passive activity loss may be allowed. 

Definition of passive activity loss.

Generally, your passive activity loss for the tax year is the excess of your passive activity deductions over your passive activity gross income. 

For a closely held corporation, the passive activity loss is the excess of passive activity deductions over the sum of passive activity gross income and net active income. 

Phaseout rule.

The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that’s more than $100,000 ($50,000 if you’re married filing separately). If your modified adjusted gross income is $150,000 or more ($75,000 or more if you’re married filing separately), you generally can’t use the special allowance. This is because the special allowance is reduced to $0 since the modified adjusted gross income is over the $100,000 amount.

@bvwest

[bvwest]

Thanks Diane.  Why isn't Turbo Tax recognizing my income on my K-1 as passive?

[bvwest]

Passive loss is deductible to the extent of passive income.  My K-1 income is passive, as I did not materially participate.  My rental loss is passive.  However, turbo tax is not allowing me to reduce my passive income with my passive loss.  Why is this?

[DianeW777]

Clarification might be needed for what kind of income is on the K1 and then the type of entity. The fact that you are not a material participant is not the only factor. 

Income and losses from the following activities would generally be nonpassive income:

• Salaries, wages, and 1099 commission income
• Guaranteed payments
• Interest and dividends
• Stocks and bonds (capital gains or losses)
• Sale of undeveloped land or other investment property
• Royalties derived in the ordinary course of business
• Sole proprietorship or farm in which the taxpayer materially participates
• Partnerships, S-Corporations, and limited liability companies in which the taxpayer materially participates
• Trusts in which the fiduciary materially participates