TT Business - Where do I enter "passive activity loss carryovers" from prior years?

[KXopherS]

Until last year I had a CPA prep and file my taxes for a Trust (Form 1041) but his annual $1500+ fee was getting out of hand so I decided to try this on my own using Turbo Tax Business.

My Trust had an investment in a limited partnership which was sold entirely last year. When reviewing my prior year tax returns, my CPA had attached a "Tax Return Carryover sheet" that shows disallowed amounts carrying over to the following year, like this:

I cannot find where in TTB to enter these amounts.

After searching through similar questions from the past on this forum, there is supposed to be an option to check when entering the details of the received Schedule K-1; i.e. in the "Describe the Partnership" section, there should be an option for "passive activity loss" carryovers.

However, in my TTB desktop app (which has the latest updates as of this writing), I do not see this option anywhere.

So my question is — where do I enter the passive activity loss (or disallowed loss) carryovers from prior years in Turbo Tax Business 2022?

I am new at this and any help would be greatly appeciated.

[HopeS]

It depends on what generated the passive loss carryover. Assuming it was rental income and you are using the TurboTax Home & Business software, you can add or verify your passive activity loss carryover by following these steps:

1. Click on the "Business" tab at the top of the screen and select Continue
2. Click "I'll choose what I work on" 
3. Select Update next to Rental Properties and Royalties and then select Yes
4. Answer the questions and select Continue. Then select Edit next to your rental property 
5. Select Update next to Property Profile. Continue through the screens until you get to the section "Do Any of These Situations Apply to This Property?" 
6. Click on the option "I have passive activity real estate losses carried over from a prior year" See screenshot below.

Please review your 2021 return and K-1 to see if the passive activity was rental income. If it was not, please post another question.

@KXopherS 

[KXopherS]

Hi @HopeS , thank you for the reply.

Firstly as mentioned in the title and post, I am using TurboTax Business as I am preparing a tax return for my Trust.

I looked through the 2021 tax return and K-1s and it seems that my passive losses come from business activity unrelated to rental (real estate) property. The K-1 (Form 1065) was provided by a Limited Partnership where, as a limited partner, my Trust is not involved in the daily activity and therefore most of the income (or loss) is classified as passive.

With that said, my question still remains the same — where in TurboTax Business can I enter the passive activity losses that carryover from the previous year?

[Anonymous_]

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@KXopherS wrote:

where in TurboTax Business can I enter the passive activity losses that carryover from the previous year?

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You can enter the suspended losses in Forms Mode directly on the K-1 you entered as received from the LP.

Open the schedule in Forms Mode, scroll down to Schedule A, and look for the (b) column.

[KXopherS]

Thank you, @Anonymous_ .

I wasn't aware of "Forms" mode since this is my first time using TurboTax (and quite the challenge too for a first timer to create a tax return for a Trust...).

I took a look at the K-1 of the partnership  in Forms mode and scrolled down, but could not find "Schedule A." Did you mean Section A as shown below? Is this the right place?

[Anonymous_ · Accepted solution]

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@KXopherS wrote:

Thank you, @Anonymous_ .

I took a look at the K-1 of the partnership  in Forms mode and scrolled down, but could not find "Schedule A." Did you mean Section A as shown below? Is this the right place?

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Yes, that is where you would enter suspended loss carryovers if you received a K-1 from another entity.

[KXopherS]

Wonderful, thank you!

Not sure how I'm going to complete this tax return correctly (it's quite a challenge for a first timer) but hopefully I'll manage with further help from all the kind folks on this forum.

Just a side note to the devs (if any see this) — it would be MUCH easier if stuff like this (passive activity loss, etc.) is guided through in the "Step by Step" mode. Perhaps one idea would be to have 3 modes:

1. "Forms" for the professionals and advanced users who want to input directly into each form,
2. "Step by Step" for the intermediate users who want enough guidance to get through the process but not too detailed that will take forever to complete, and then a
3. new "Complete Hands-on" mode for utter beginners like myself who want to be guided every step of the way regardless of how long it would take

Anyway, just my 2 cents 🙂 Cheers.

[Anonymous_]

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@KXopherS wrote:

Wonderful, thank you!

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You are most welcome.

However, in anticipation of the next issue, you will need to know your basis in the LP, the sales price and any expenses, and also Section 1250 gain or ordinary gain (if any). You may have to contact the accountant you used to prepare prior tax returns for this information; no one on this board can provide you with that information.

As a final thought, and in my opinion, part of the problem with these investment vehicles is that they are extremely complex in terms of tax reporting, particularly when they either wind down or are sold. Personally, I try to avoid investing in anything that is going to get me a K-1 for that precise reason.

[KXopherS]

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@Anonymous_ wrote:

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However, in anticipation of the next issue, you will need to know your basis in the LP, the sales price and any expenses, and also Section 1250 gain or ordinary gain (if any). You may have to contact the accountant you used to prepare prior tax returns for this information; no one on this board can provide you with that information.

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Thank you for the heads-up. In the Schedule K-1 (Form 1065) I received from the limited partnership, they included a "Sales Schedule" that looks like below:

The Trust was dissolved last year so everything was basically sold as well, including the limited partnership. Does this sales schedule look like it will have enough information that you mentioned? There was no Section 1250 income as far as I can see on the K-1 (i.e. it was blank).

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@Anonymous_ wrote:

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As a final thought, and in my opinion, part of the problem with these investment vehicles is that they are extremely complex in terms of tax reporting, particularly when they either wind down or are sold. Personally, I try to avoid investing in anything that is going to get me a K-1 for that precise reason.

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I totally agree. If I had known all these things ahead of time I would have told the investment firm to stay away from these partnership investments and keep things simple. It all just doesn't seem worth the headache each year. Lesson learned.

[Anonymous_]

Yes, that appears to be sufficient information from which you can report.