Question

K-1 Part III negative box 2 - do I need to file nonresident income tax return?

Forum|Forum|4 years ago
March 17, 2022
1 reply
0 views

Hi, TurboTax experts:

I received a few K-1 (form 1065) for passive real estate investment income (loss) in CO, AZ and OR. I am non-resident for these states - have never lived there and do not have any other income from these states. All K-1 Part III box 2 reported loss. I do not owe any tax.

I have 2 questions:

1. Should I file the nonresident tax return in these states to capture the loss so that they can be used to balance the gain in the future?

2. If I do not file the nonresident return now and wait to file until the box 2 reports gain, can I still report accumulative losses from prior years then?

M

mglauner

Per Champ @Mike9241:

"It may surprise you but I've come across a few states that didn't allow loss carryovers for non-residents. this was many years ago and the law for those few states may have changed.

don't wait to file. most if not all states have the same 3-year statute of limitations that the IRS has. if you don't file within its set time limit then it would disallow any loss on any return filed afterward. you could wait say two years past the original filing deadline but things happen. what I would suggest is to take a look at the amount of the loss for each nonresident state. you can then probably GOOGLE the tax rate in the state so you can find the potential tax savings of the loss. since Turbotax charges for state returns, ask yourself if it makes sense to file if the costs of filing are about the same or more than the eventual tax savings of the loss. professionally, what the firms I worked for did in practice was to not file returns if the tax value of the loss was less than the fees (what would be charged for preparation time + the pass-through of what was charged by the software provider for using their software for the state). Once the loss became significant enough to file (assuming the state allowed a loss carryforward) we would continue to file subsequent years regardless of the k-1 amount to preserve loss carryovers. it was really a guessing game. in some cases we were right in others not because there was never any income in that state."