TurboTax K-1 error: Previously disallowed QBI must be manually calculated

[Six-Strings]

I am getting the above error message after completing input for a K-1 form. However, I do not have any previously disallowed QBI. How can I clear this error?

The K-1 is for a real estate limited partnership that I am a member of. There is a small amount of passive income. I have never had disallowed QBI. There is no at-risk liability. Box 20 is checked for A, Z, and AH and that information is entered.

I have three such partnerships and am getting the same error on all three K-1 forms. These are a few years old and I don't recall ever having this error before.

[DavidS127]

If you have not updated your software recently, use the menu at the top to check for updates (Online>>Check for Updates). TurboTax updates since 3/10/2020 have resolved similar issues related to "prior year disallowed QBI" messages. 

[Six-Strings]

Thanks for the suggestion, though I have done an update since then and just checked to make sure, and it told me my software was up to date.

[DavidS127]

The issue of QBI carryforward is a new thing in 2019, because the QBI deduction just started in 2018.  Now, for the first time, QBI losses from the previous year (2018) are being used to offset QBI income in the current tax year (2019).

When you have a business that qualifies for the Qualified Business Income (QBI) deduction, your deduction is based on the income of the "QBI business".  No QBI business income, no deduction.  And, if you have a loss on your QBI business, that loss gets tracked and "carried forward" to be offset against next year's QBI business income when calculating that next year's QBI deduction.

This is true even if the losses were passive.  Passive losses for a QBI business (from 2018 forward) will be tracked until the year the loss is included in taxable income.  So, it could be that your passive losses for a QBI business from 2018 are generating this error.  You may need to find any carryforward amounts in your 2018 tax return for your QBI businesses, and separately report the passive ones that can only offset passive income.

The IRS instructions for reporting "Loss Netting and Carryforward" are in the instructions for Form 8995.... 

[Six-Strings]

Well, I just did another update this morning and now that error has just disappeared.

I have a new error but that may be another question. All three of my K-1 forms have Z checked in box 20, with an annotation of STMT but there is no statement attached (there is a statement for AH). TurboTax insists on an entry here but no idea what to put. I am going to call the partnership accountant and ask why there is no statement.

[DaveF1006]

if you don't have any information to put into Box 20, remove the V code in Box 20 and leave this blank so you can move on in your return.

[wajake41]

Downloaded latest update tonight. 4/7/20 Opened tax return and Qbi deduction was increased and QBI carryforward amount went to zero. Tax refund increased so attempted to file a amended return. At amended 1040 forms print time, line 20 on 1040 of amended form showed an increased refund amount. Tax window on page showed a different amount. Printed return, printed return shows the amount that was in the tax amount window not what was displayed on line 20 of 1040.

Looks like we have an issue.

[DavidS127]

The issue is that your Original filed tax return amounts were not “frozen” before your amendment was started in TurboTax.  Ideally, you would immediately start the Amend a Filed Return (button on lower left when you open your TurboTax Download/CD).  If you opened the Original tax return before you started the Amend process, the software update was applied, and may have changed that tax return before you started the Amend process.

If you saved a copy of the Original “.tax2019” file, make another copy to make sure you have a “spare”.  Then, start TurboTax, immediately click the Amend a Filed Return button on the lower left, and then choose a copy of the Original “.tax2019” file.

You may be able to “get back” to the Original filed return if you “undo” the amend process you’ve started.  But, because the changes were made by a software update, that may not work.  Similarly, you may or may not be able to “recreate” your original return in a TurboTax Download/CD version, but the software update may also make that difficult.  It could be that whenever you open the “.tax2019” file for your original return, the calculations will update.

Another option, and it may be the least frustrating approach for you, is to use the amended TurboTax Form 1040 you now have (after the update) to include with your Form 1040X filing, but either in Forms mode “override” the Form 1040X Column A in TurboTax Download/CD or prepare a manual Form 1040X outside of TurboTax.  When you are finished, Column A should “match” the Original return you filed.  Column C should match the “amended” tax return you have in TurboTax.  Column B should be the difference.  Check to make sure lines 16-23 are correct for the 1040X you are filing.

The 1040X must be mailed, it cannot be e-filed.  The “package” is the Form 1040X and the “new” Form 1040 with your amendment changes.

If you want to try the “undo amend” process, see this link to a TurboTax Help article on how to undo an amended tax return in TurboTax Download/C....

[wajake41]

Hello:

Thanks for your response.

You are exactly correct as to the issue when you write

"If you opened the Original tax return before you started the Amend process, the software update was applied, and may have changed that tax return before you started the Amend process."

Yes, the tax refund was changed. 

 I was able to determine that that was the cause of the issue. I contacted TT and was almost immediately redirected to one of their CPA's and with her  (Janet) help we corrected the problem. 1040X has been mailed.

Great service from Janet and TT.

Thank you for your reply,

Larry

u

[Waylan440]

I got a question for you I filed my 2017&2018 same time I got my 2018 and have yet to here from anyone I moved from Illinois to North Dakota and I got my 2018 bit now I have yet to hear anything about the other tax return and I can't go online and check my status due to the fact that it says wronge info giving how do I find out how to see where my refund is Please Text me and let me know [phone number removed]  Also how can one file 2019 taxes when my identity got stole and the IRS women said I would have to manually old school paper file my taxes but yet I can't get up there to see the IRS

[CC3012]

I am working on 2022 taxes. In the step by step for K-l my passive operating numbers from previous years did not carry forward.  I have hard copy returns from 2018 -  2021. Exactly where do I find the disallowed passive losses by (year and type) for form entries Operating losses (Regular Tax and QBI) ?   I have looked at forms 8582, 4562, and Schedule E.   I do not have all the worksheets for each year.

[MarilynG1]

Per Expert @Irene2805:

"Information for calculating the Qualified Business Income (QBI) deduction should be included in a Statement A, attached to your K-1.  It is also included in Box 20 of a K-1 for a partnership with code Z.

If you don't have Statement A, the QBI Passive Op Loss is the figure listed on line 1 or line 2 (if real estate) of your K-1 if:

• It is a negative number; and
• The material and active participation boxes are not checked.

Otherwise, leave the answer field blank."