Passive loss on rental property when moving out of California

[goyal_raj]

Hi,

I have an overseas rental property on which i have a new unallowed loss (rental minus depreciation) as it considers my income as too high. Every year that loss is shown under passive loss limitations worksheet.

I moved out of California in 2021 and while filling my tax returns for California, Turbo tax asks me if i have passive loss carry over. Should I be entering something there given that the loss is not allowed in my federal return and probably in my prior year California returns too?

Thanks

[PatriciaV]

Yes, continue to report your Passive Loss Carryovers for both your Federal and State returns. This historical information will be useful if you ever sell the property or if your income drops to allow you to take those losses.

[goyal_raj]

Thanks PatriciaV.

Since I moved to another state mid year, how would that impact the passive carry over loss? Would the entire loss be attributed to the new state now? Or do I have to make it proportionate i.e. only from the start of the new state's residency? Since I no longer live in the previous state, that loss has no meaning for that state anymore, so it should be carried over to the new one in my opinion. Please share insights.

And where do I enter the loss separately for rental property and short term loss on investments?

Thanks,

[DianeW777]

Yes, this loss when used will only be considered on the state return where you live when you sell it or have income to utilize the loss on future returns. The capital loss carry forward can be entered following the steps in the link below.

• How do I enter my capital loss carryover?

Entering the passive activity loss carry forward for your rental activity should be completed as follows:

1. Click the Federal Taxes tab
2. Click Wages & Income
3. Scroll down to the Rental Properties and Royalties section
4. Click the blue Show More in this section
5. Click Start (or Revisit) next to Rental Properties and Royalties (Sch E)
6. Click Yes
7. Click Continue
8. Click the blue Edit button next to the rental you'd like to add info for
9. Click Continue until you reach the screen entitled Do any of these situations apply to this property?
10. Scroll to the bottom of this page and check the box next to I have passive activity real estate losses carried over from a prior year.  (see image below)
11. Click Continue

[goyal_raj]

Thanks DianeW777.

Your comments refer to entering the loss on the Federal return, which in my case, Turbo tax has done already. My question was in reference to the state return. How do i report it on the state return?

Thanks

[DianeW777]

It depends. If I understand that you moved out of California (CA) the entire loss will be attributable to the state where you reside at the end of the year.  It's unclear which state is the new state so for this reason, I am unable to determine if the new state allows carryover of losses. Not all state follow federal income tax laws.

[goyal_raj]

I moved to NC in Aug 2021.

[DianeW777]

North Carolina (NC) follows the same as federal law for passive activity losses in the year of disposition. The federal Form 8582 is part of the NC return as well to show the loss carryforward to 2022. There should not be a separate entry in the state section of the return.

• NC FAQs Regarding Deduction for Net Business Income
• Question 3:
  • If there is a passive activity with losses that are carrying forward and there is a complete disposition of that passive activity, under IRC 469(g) the carried-forward losses are treated as “not from a passive activity.” In this situation, if the taxpayer also has substantial nonpassive business income, would those freed-up passive losses count against him and offset his nonpassive business income, thereby reducing or eliminating the North Carolina business deduction of up to $50,000?
    • For purposes of this deduction, passive income means the income generated from the conduct of an activity of a trade or business that satisfies the definition in IRC section 469. Likewise, a passive loss means the loss generated from the conduct of an activity of a trade or business that satisfies the definition in IRC Section 469. Treasury Regulation §1.469 provides official interpretation on when income or loss is considered passive. We follow the treatment of classifying income or loss as passive or nonpassive based on this treasury regulation and IRC Section 469. Because IRC Section 469(g) treats the disposition of the entire interest in a passive activity as “a loss which is not from a passive activity,” the loss must be offset against any current nonpassive business income in determining the North Carolina business deduction available.

[goyal_raj]

Thanks DianeW777.

I do not see the Form 8582 in my NC package that Turbo tax has prepared (and I have selected all worksheets).

Secondly, this form has losses for this year only though i have carry over loss from prior years too (for my rental property). How do i include that?

One more question...i made a mistake while entering the estimated tax for next year for NC. I entered estimated income instead of tax. how do i correct that? I can't find any navigation for it.

Thanks for your help,

[RobertB4444]

@goyal_raj  The 8582 is a federal form and TurboTax will attach your federal return to your NC return when you e-file.

TurboTax should have carried your passive losses forward for you.  You can enter them manually in the desktop version if necessary.

You should be able to go back to your estimated payment section to make changes.  Just search 'estimated payments' while in your state return and then click the 'jump to' link.  If you are locked out then it may be easier to delete the return and start over

[goyal_raj]

Thanks RobertB4444.

I went to the state return and tried to reverify all info again and it did not ask me about estimated taxes again. I went to 'Search' as you suggested and Estimated Payments' took me to my CAlifornia return where i did pay some estimated taxes. What I want to change is the estimated tax for next year. In y Estimated TAx workshet for NC, FOrm NC-40ES, line 1f shows my income for next year and not the tax, so the estimated tax vouchers are showing the wrong amount.

For the passive loss forms, I see that the list of forms that Turbo tax has generated has nothing from my Federal return, which is not the case for my California return where all Federal forms are included. How do I resolve that? 

And I still can't figure out how i show my carry over loss from rental property from prior years in the NC state return, if I have to?

Thanks,

[RobertB4444]

To edit your Estimated Taxes paid, please complete the following steps:

• Sign in to your TurboTax account
• Click on Take me to my return button
• Select the Federal Taxes tab
• Select the Deductions & Credits tab
• Scroll down Other Tax Forms and select Estimates and Other Taxes Paid (Show More)