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Anne , Master Tax Preparer
Category: Tax
Satisfied Customers: 2326
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Can a K-1 loss be carried forward?

Customer Question

I have a huge loss on the K-1 report, that is way more than my 2007 income. How do I carry that forward to use next year? Does the loss amount increase with my itemized personal deductions as I work through the 1040?

Submitted: 7 years ago.
Category: Tax
Expert:  Marvin,EA replied 7 years ago.

Hello and thank you for using JustAnswer. Under Section 469, deductions for passive activity losses are limited to passive activity income. Losses not allowed under these rules are carried forward to the following tax years. You will use Form 8582, Passive Activity Loss Limitations (, to computing passive loss allowed/disallowed for the tax year. The loss does not increase with your itemized personal deductions.

Customer: replied 7 years ago.

This is a non-passive loss, and I have not been able to find info on that, where as I've found lots of things on passive losses and those limitations.

Expert:  Marvin,EA replied 7 years ago.

What type of a non-passive loss do you have?

Customer: replied 7 years ago.

Thanks so much for still following this. The K-1 is from a retail business S-Corp I closed at the end of the year. It shows a big loss. In working through my 1040, I've entered that negative amount on the income portion of the form. So a negative number carries over to the top of the second page. Then comes the single exemption, and my itemized deductions. Not sure what a negative income does to those. And then I have a 10% penalty of a bit more than $4,000 for early withdrawal of IRA. I'd like to think the excess negative income would wipe that out.

The K-1 income, being from no passive source, meets the criteria I read in the instructions for form 85_ _ in that I owned and was the sole full time employee of the S-Corp business that was the source of the negative income figure. Hope this helps. I have not been able to find any print resources that address this!

Expert:  Anne replied 7 years ago.

It sounds like you might be dealing with a Net Operating Loss (NOL). In general, a Net Operating Loss occurs when the cost of doing business exceeds the business income. Net Operating losses may be carried back 2 years, or carried forward for 20 years, until the loss is used up. You may choose to forego the carryback period and only carry the NOL forward to future years by attaching a statement to your 2007 tax return to that affect. This choice must be made before the due date of the tax return including extensions and is irrevocable

Since an S-Corp is a "pass thru" entity, your Net Operating Loss will be calculated on your personal return by using 2007 Form 1045.

Please see below for more in depth information:

Publication 536 (2007), Net Operating Losses (NOLs) for Individuals, Estates, and Trusts

I hope this give you a place to start.

Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2326
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
Anne and other Tax Specialists are ready to help you
Customer: replied 7 years ago.

Thank you! I did put through a small bonus, to express my appreciation for the information. I think this will get me going on dealing with the Net Operating Loss. If I had known to search with that term, I might have found what I needed! But therein lies most of the glitches with the IRS! Knowing the right words to use! Thank you so much for your help!

Expert:  Anne replied 7 years ago.
Thank you for allowing me to help.

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