At Risk VS Passive loss entry on schedule E worksheet for rental property

[Laurelby]

Last year (2019) I had a $9211 loss on a rental property recorded on the schedule E (line 21) worksheet which resulted in a deductible loss of $1560 (line 22).  My questions when entering past losses do I enter the resulting $7651 remaining carry forward loss as a passive or at risk loss on the 2020 return?  

[DavidD66]

At-risk rules limit the amount of a business loss you may deduct in any given tax year. You may only deduct up to the amount of your investment in an activity that you stand to lose (have at risk). If a loss exceeds your at-risk investment, the excess is a suspended loss and may be carried to future years indefinitely and deducted when there is sufficient at-risk basis to absorb the loss.

Passive activity rules restrict the deduction of passive activity losses. You may only deduct passive losses from passive income.

Rental real estate is a passive activity (for most investors), so you would indicate that the carry forward is a passive loss on your 2002 return.  It is not being carried forward due to the At Risk rules.

[Laurelby]

Thank you David.  That makes sense to me, but I am still at a little bit of a loss as to where and how to determine the passive loss from the previous year.  Would that be the current year net loss for the property on worksheet 1 from form 8582 on the 2019 return, or perhaps the QBI business loss on form 8995 line 1, or perhaps elsewhere?  The software has carried forward the entries for Regular Tax Carryover, AMT Carryover and QBI Carryover, but then on the final review it is prompting for a required entry on the schedule E worksheet "disallowed passive loss" on Line G QBI Column.  I'm trying to understand where this number should be coming from to accurately complete the worksheet.  Can you provide guidance?

[Laurelby]

This all makes perfect sense, but the question remains as to which portion of the loss is recorded on the 2020 worksheet for the prior year QBI Disallowed entry.  the logic is solid, but which portions belong on line G remain unclear.  It seams to me that since it is from the prior year it should come into the worksheet with the import as does the AMT and Regular Tax information, but this appears to not be the case so it leave me still in the same dilemma not knowing what to enter in the worksheet for the calculation to be correct and accurate.  It seams that there are others with the same question particularly when there are several rental properties in the mix how much is allocated where.

[Tax2019Pay]

Hi, David:  I found one of your older relies.  I have the following question and wonder if you can help.

We have limited partnerships in a few apartment rental properties.  I have received K-1's for these.   We receive dividends quarterly and K-1's for the year but otherwise being passive investors.    When entering K-1's, there is a prompt asking us to describe the partnership, we have checked the box "I have passive activities losses" and the box "All of my investment in this activity is at risk.  

However, we do not know if for our case, if we need to also check the box "I have at-risk losses carrying over from 2020".  In your Feb 8, 2021 post, it sounded like that we should not check this box.  Just want to check to make sure that this box does not need to be checked.

In more general questions, what actually fall under the Passive Activity rules vs At-Risk rules?

My final question is about passive activity losses carryover.   I have box 2 losses for these investments.  Should I still file Arizona, Oregon and Colorado nonresident taxes where the properties reside and where I have never lived.

Thanks so much in advance for your expert guidance.

[RobertB4444]

@Tax2019Pay  You should check the box for prior year losses if you have any unallowed losses that you are carrying forward on the individual partnerships.  If you took the losses in the prior years then you do not have to.

If your state income is negative for the three states in question then you do not need to file taxes for those states.  However, if you want to register the losses in those states so that you can carry them forward to utilize them later then you may want to file the returns anyway.