A loss is the excess of allowable deductions from an activity for the year (including depreciation
or amortization allowed or allowable and disregarding the at-risk limits) over income received or accrued from the activity during the year.
In an individual tax return, the loss from a particular activity may not be allowed due to either the passive activity limitations or to the taxpayer's basis in the activity having been reduced to zero. If a loss is not fully allowed due to the passive activity limitations, the unallowed amount is determined on Form 8582.
If a taxpayer's prior year return shows an amount of unallowed loss on Form 8582, you'll need to enter the unallowed loss in the current year return in the schedule to which the loss relates.
Unallowed loss from rental activity on Schedule E
If last year's Form 8582 shows an unallowed loss for rental activity, enter the unallowed loss in the rental property's menu. From the Federal Section of the income tax return select:
- Income
- Schedule E - If the rental property's record is already entered in Schedule E, click its pencil icon to edit it. Otherwise, create the rental property record.
- Expenses
- Prior Unallowed Loss - Enter the amount of unallowed loss showing on Form 8582 for this property.
Unallowed loss on Schedule C
An unallowed loss on Schedule C implies the taxpayer does not materially participate in the business. In the prior year's return, the unallowed loss would have carried to Part V of Form 8582.
The loss can be entered in the current year Schedule C if the business had a profit. From the Federal Section of the tax return select:
- Income
- Schedule C - If the business has already been entered, click its pencil icon to edit it. Otherwise, create the Schedule C for the business.
- Questions About the Operation of Your Business - Two items under this menu are relevant to the unallowed loss:
- Check here if you "materially participated" in the operation of this business during the tax year - Be sure this box is unchecked.
- Prior year unallowed loss - Enter the unallowed loss as shown on Form 8582 in the prior year, but only if the current year's Schedule C shows a net profit.
Unallowed loss on Schedule F
An unallowed loss on Schedule F implies the taxpayer does not materially participate in the business. In the prior year's return, the unallowed loss would have carried to Part V of Form 8582.
The loss can be entered in the current year Schedule F if the business had a profit. From the Federal Section of the tax return select:
- Income
- Schedule F - If the farm has already been entered, click its pencil icon to edit it. Otherwise, create the Schedule F for the farm.
- Basic Questions About Your Farm - Two items under this menu are relevant to the unallowed loss:
- Check here if you "materially participated" in the operation of this business during the tax year - Be sure this box is unchecked.
- Prior year unallowed loss - Enter the unallowed loss as shown on Form 8582 in the prior year.
Additional Information:
IRS: Instructions for Form 8582, Passive Activity Loss Limitations
IRS: Publication 925, Passive Activity and At-Risk Rules