On IRS Form 8582, Part V (or worksheet 3 in 2020) tells me to enter the income or loss from my passive partnerships. Then Parts VII and VIII (or worksheets 5 and 6 in 2020) tell me to calculate how much of those losses are unallowed and allowed based on the ratio of net losses of all the partnerships. For each partnership, the amount that's not allowed can be carried forward to future years.

But for each partnership, I'm not supposed to claim a loss that exceeds my basis in that partnership. There's nowhere on Form 8582 or Schedule E to enter my basis and apply it to increase the unallowed amount calculated in Part VII (or worksheet 5). Where do I apply that basis limitation on the calculation of the amount of unallowed passive losses?

1 Answer 1


The instructions to the form provide the necessary guidance:

Coordination With Other Limitations

Generally, PALs are subject to other limitations (for example, basis and at-risk limitations) before they’re subject to the passive loss limitations. Once a loss becomes allowable under these other limitations, you must determine whether the loss is limited under the passive loss rules...

Basically what it means is that only the loss allowable to begin with should be considered for PAL. So if the loss is not allowable due to basis or at risk limits - it shouldn't be considered for PAL at all. You should not include loss in excess of these limitations on Form 8582. You can use the Form 6198 for this calculation. Whatever ends up being a deductible loss on Form 6198 will then be carried over to form 8582.

  • Thank you. Form 6198, line 21, says "See the instructions to find out how to report ... any carryover." The instructions for Form 6198 do not contain the word "carryover," but say on page 2, "If you have losses ... from an earlier tax year ..., include ... on the appropriate form ... of your current year tax ...." It gives an example with Sch C, but I don't use Sch C. So if Form 6198, line 5 is (9,000) and line 21 is (2,000) then I have $7k not allowed by this form. Do I then include that amount in the next year's Form 8582, Part V (or worksheet 3), column (c)?
    – NewSites
    Commented Aug 6, 2022 at 12:13
  • @NewSites I don't believe so. But it seems that your tax return is complicated enough for a professional assistance. I'd suggest you talk to a EA/CPA licensed in your state.
    – littleadv
    Commented Aug 6, 2022 at 19:07
  • Can you tell me please where you believe the amount excluded by Form 6198 for a K-1 should be entered in the following year?
    – NewSites
    Commented Aug 6, 2022 at 20:20
  • @NewSites nowhere, that's what "excluded" means. As a passive investor, you cannot lose more than you've invested, so if the loss exceeds your basis - the excess is non-deductible.
    – littleadv
    Commented Aug 6, 2022 at 22:43
  • The basis has increased substantially from 2020 to 2021 due to PPP received. The instructions for Form 6198, pg 2, section "Part I—Current Year Profit (Loss) From the Activity, Including Prior Year Nondeductible Amounts" says, "If you have losses or deductions from an earlier tax year that you could not deduct because of the at-risk rules, include those amounts on the appropriate form or schedule of your current year tax return before starting Part I." That seems to be telling me that the amount that exceeds the basis in 2020 can be carried forward to 2021.
    – NewSites
    Commented Aug 7, 2022 at 2:51

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