My client got a final K-1 for 2014 with net section 1231 Loss which carried over to 2015. No previous gains or losses were reported during past 5 years or the current year. How do I treat the carryover loss in 2015?
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Why is there a carryover to 2015? A §1231 loss is deductible in full in the year it occurs, unless it's from a passive activity. You wrote, though, that the loss was on a Schedule K-1 marked "Final," suggesting that your client disposed of that activity in 2014. Unless there are additional relevant facts you omitted in your OP, there should be no carryover.
Addendum: Upon re-reading your OP and BHoffman's reply, I realized I may have misinterpreted your question. If your client deducted the entire §1231 loss on his 2014 tax return, there is nothing to carry over to 2015. However, that 2014 loss will serve to convert any net §1231 gains to ordinary income that the taxpayer recognizes during the five years after 2014 ... i.e. through the year 2019 ... but only up to the amount of that 2014 §1231 loss. If this was your question, then your tax prep software might track it for you, but it might not. It would be a good idea to keep a note in your file about this where you will see it if there are net §1231 gains in any year through 2019.
Btw, the correct term for this is "nonrecaptured" net §1231 loss. The term "unrecaptured" refers to a certain portion of the gain on the sale of depreciable real property and is very different. (It is also very much misunderstood.)Last edited by Roland Slugg; 03-22-2016, 09:13 PM.Roland Slugg
"I do what I can." -
I think the client needs to keep the unrecaptured 1231 loss amount for five years from the date he reported the loss. I think you wrote 2014.
You can just leave it alone and let your software carry it forward.Comment
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