Schedule E Losses and Carryover Worksheet

[nrpcpd84]

Schedule E loss shows on 1040 and reduces taxable income as expected.  But it also shows up on the Federal Carryover Worksheet.  How can the loss reduce taxable income and also show up on the Carryover worksheet at the same time?

[ReneV4]

If a rental loss from Schedule E is reducing your current year taxable income on your Form 1040 and also appearing on a Federal Carryover Worksheet, it usually means that your total loss is larger than what you are allowed to fully deduct in the current year, or larger than your other income.

For example, if your rental is considered a passive activity, but you actively participate in managing it, the IRS allows you to deduct up to $25,0000 of your rental losses against your non-passive income (e.g. W-2 wages), provided your Modified Adjusted Gross Income is under $100,000 (Phases out between $100,000-$150,000). 

Therefore, if your rental losses were $35,0000, the first $25,000 will successfully flow through your Form 1040, reducing your taxable income. The remaining $10,000, however, is suspended and shows up on your Carryover Worksheet for future years.

Also, bear in mind that some states do not allow the same $25,000 deduction that the Federal government does, so the worksheet keeps that data ready in case your state return needs to add back the loss.

To ensure your entries are correct, review your Form 8582 (Passive Activity Loss Limitations). Part II will show how much loss was allowed (should match your 1040). The Carryover Worksheet will show zero (0), if there is no carryover amount, or the specific amount that exceeded your limit, which can be applied in future years.

[nrpcpd84]

Thank you so much, Rene!! 

TT (TurboTax) didn't generate a F 8582 for 2024 or 2025. Upon reading the instructions my daughter meets all the criteria so she doesn't have to complete F 8582. 

Her 2024 Sch C gain was $1,221 and Sch E loss was $3,082.  The net loss of $1,861 shows up on Sch 1 line 10 and also on F 1040 line 8, reducing her total income on F 1040 line 9.  But then the Sch E loss of $3,082 also shows up on the Federal Carryover Worksheet, line 29 as a Qualified Business Loss Carryforward for 2024 of $7,292 (2024 loss of $3,082 plus the 2023 loss CF of $4,210) in the section entitled Qualified Business Income Deduction (Section 199A) Carryovers.

I think I'm just confused by trying to look at this like an NOL or charitable contribution carryover which it isn't. As I read about it, I think the QBL carryover I'm seeing is not on the carryover worksheet to reduce future Sch E income, but for the purpose of calculating the 20% QBI deduction.  That makes sense because for 2025 she has a Sch C gain of $1,352 and a Sch E gain of $4,527 which isn't being reduced by the QBL carryover which it shouldn't if I'm thinking about this correctly. But that 2025 income of $5,783 (Sch C and E combined income less deductible self-employment tax of $96) reduces the QBL carryover on the federal carryover worksheet.  Does that make sense?

[PatriciaV]

Yes, you are correct. The calculations for QBI are separate from taxable income. If you have more QBI losses than QBI income, the difference is carried forward until you have income to be offset by the prior losses. Again, this will not affect taxable income directly. Only once the QBI becomes positive will there be a QBI deduction on the return.