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When you received the K-1 for the prior year- the loss would have been included on your prior year personal tax return. presuming you were actively involved in the S Corp and you had basis - this loss would have offset your income in prior year and any excess loss not used will be carried forward on your personal tax return.
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Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.
$26,000 loss would be reported as net operating loss in 2008 and it must have offset your other income (if you reported as a disregarded entity on Sch C,). Any excess loss would have been carried forward and can be claimed on Form 1040 on " other income" line as NOL and entered as negative item.
Here is alink to the publication for your reference-