Unused depreciation from previous years not being used to offset new positive passive income in 2021

Forum|Forum|4 years ago
March 23, 2022
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I put a residential rental property into service in 2019 and claimed a ~$37K special deduction for interior upgrades. With the annual depreciation alone, this property produces a small passive loss. In 2019, 2020, & 2021 I also received passive income from a K-1 real estate investment. The rental loss offset the gains for a net $0 taxable amount. However, in 2019 and 2020 I had lots of unused depreciation to carry forward.

In 2021, the passive gain in the K-1 investment exceeded the passive loss realized in 2021 so I had expected turbotax to use the carried depreciation from the previous years to net this to zero. TT-Premier did NOT do this and instead I now show a modest taxable passive gain.

Both the rental property and the special deduction were entered as formal assets in 2019 TT-Premier and those assets are automatically being carried over into 2020 and 2021. Why is unused depreciation from the previous years not being used to offset passive income realized in 2021? What is the recommended workaround?

FWIW, I've used the TT-Premier desktop edition for all three years in question and my MAGI is >$150K so I'm not talking about offsets to active income. I'd just like my passive holdings to continue to net out to a $0 amount for 2021 and beyond which they should given that I haven't used a penny of the one time "special depreciation" amount from 2019.

Mike9241

we can't see your return

the unused losses from 2019 and 2020 are not depreciation per se. you for each property you end up with a net passive loss or profit. they are netted and if a net loss some or all may be allowed if your adjusted gross income is less than $150,000. any unallowed loss is carried forward but it is not identified as depreciation just as a passive loss which shows up on form 8582. so look to form 8582 to see what's reported.

In 2021, the passive gain in the K-1 investment exceeded the passive loss realized in 2021 so I had expected turbotax to use the carried depreciation from the previous years to net this to zero. not quite right it would be the passive loss carryforwards that would be used to net to zero.

again look at form 8582 to see what's being reported.

if the K-1 is from a publicly traded partnership (Part 1 box D would be checked) that passive gain can't be used to offset the passive losses from your personal rental activities and won't even show up on form 8582

tbolducAuthor

Interesting... Form 8582 looks correct to me. Unused losses on line 1d offset passive gains on line 2d! Great, but here's where I'm still confused. TT's QBI Deduction Summary is showing net positive income (for rental loss + K1 gain) instead of $0. This net positive QBI is being carried to line 13 of my 1040. Should I be able to claim a non-zero QBI when 8582 says my allowed losses on line 11 exactly match my passive gains?

BTW, I have now signed in from within TT, so perhaps you can see my return now?

ThomasM125

A QBI loss may be allowed against other QBI income on your return even if it is greater than the passive losses allowed against ordinary income. So, it is possible that you don't have a QBI loss carryover from the previous year even though you have a passive loss carryover. That would explain why you may have QBI income but no net rental income in the current year, as income for QBI purposes might not be limited due to prior year passive loss carryovers.

No one but you can look at your return for security reasons.

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