You will be able to pass the losses to your personal tax return, but if it is a passive loss, you are not allowed to deduct this loss from your other income. They are suspended to be used when you have a passive profit or when you sell. You cannot use the loss in the future if you do not report it this year. When you prepare a Form 1065, it will generate K-1 forms for both of you to enter on your personal return.
The United States tax code allows certain types of entities to utilize pass-through taxation. This effectively shifts the income tax liability from the entity earning the income (your LLC) to those who have a beneficial interest in it. The Schedule K-1 is the form that reports the amounts that are passed through to each party that has an interest in the entity. These businesses are often referred to as pass-through entities.
IRS Topic 425. Generally, passive activity losses that exceed the passive activity income are disallowed for the current year. You can carry forward disallowed passive losses to the next taxable year. A similar rule applies to credits from passive activities.
Ordinary business income (loss) reported in Box 1 of the K-1 is entered as either Non-Passive Income/Loss or as Passive Income/Loss. The determining factor in whether the income should be reported as Passive or Non-Passive depends on whether the taxpayer materially participated in the business activities. See: Publication 925 - Passive Activity and At-Risk Rules.
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