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How to file a VA non-resident return with partnership income but with loss carryover?

phaser

I am a NY resident but I am a member of a partnership LLC operating in VA. It had a big loss in 2024. In 2025, the LLC made a small profit but my k1 income in 2025 is still less than 2024 loss carry-forward. Since the LLC had income in 2025 and the VK-1 I received showed a positive number, I assume I need to file a non-resident return with VA? I am visualizing that the return should show my loss carryforward from 2024 as a negative number, then add the 2025 income, and the result is still a negative number, therefore showing that I owe $0 tax to VA.

However, when I tried to use FreeTax USA to do this, it imports the numbers from my Federal 1040 automatically. When it comes to Partnership Income, it says "0" because that's what was listed on my 1040 Schedule E. In other words, I cannot find a way to provide the details of my K1 numbers to show the carryover loss from 24 and the income from 25.

Am I missing something? Or is it the limitation on FreeTax USA's software? Or should I just not bother with filing VA return? I have been told by others that I should file VA return even though I don't owe anything, if only to keep a record of the carryover loss. But right now, FreeTax USA's software is not allowing me to do this.

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Comments

GeorgeM

Hello phaser:

We assume your partnership investment is not a publicly traded partnership, i.e. a Master Limited Partnership, as our software does not currently support MLPs.

To address your question directly, yes, after entering your passive loss carryovers on your federal tax return, and given the amount of your passive loss carryovers, your VA tax return will likely show that you do not owe any VA tax.

So that your VA tax return properly accounts for the fact that you had passive loss carryovers from the prior tax year, you need to ensure that your passive loss carryovers have been entered on your federal tax return. In our Partnership Income section (Income tab > Partnership Income (Schedule K-1)) our software does ask about passive loss carryovers. On the screen “Tell us about your partnership (Schedule K-1)” is where you will find the question about passive loss carryovers. Given your situation, respond with a “yes” to the question about passive loss carryovers.

After selecting “yes,” continue through our software and you should eventually see the screen “Partnership Loss Carryforwards,” where you can enter your loss that will carryover to future tax years.

Prior year passive loss carryovers are reported on Form 8582, and the losses that will carryover to the next tax year appear in Section VII of that form.

With regard to whether you should file a VA non-resident tax return given that your VA AGI may be $0 resulting in VA tax due of $0, perhaps the more prudent approach is to file a VA non-resident tax return. While you may not need to file a VA tax return (see Who Must File at VA Department of Taxation, https://www.tax.virginia.gov/who-must-file), reporting the passive loss will confirm to the VA taxing authorities that your tax liability is, in fact, $0. Moreover, by filing a VA non-resident tax return, you will have a paper trail of what you did in tax year 2025 should you need to refer back to this information in later tax years.

phaser

GeorgeM,

Thank you for the response, but I don't think you fully understand what I was experiencing.

Yes it's a private partnership. Yes I have properly entered the passive loss carryforward on my federal return. I did my tax last year using FreetaxUSA also, so everything is saved and I had zero problem with my 1040. When I was doing the federal return this year, 8582 automatically displayed the carryforward loss from last year and added the small positive number on my K1 this year and showed me the remaining carryforward loss for next year.

The problem I am having is with VA tax return. On the Income section, all the income numbers I have entered on my 1040 are automatically imported to VA return. For the Partnership Income, it says 0 because that is indeed what's on my 1040. What's lost is the information on 8582. If I cannot somehow enter the 8582 information onto the VA return (prior year carryforward loss + this year K1 income = a negative number which means 0 on this year's return), it's meaningless for me to file the VA return. So in summary, my question is: how can I enter the information from federal form 8582 onto the VA return?

GeorgeM

Hello phaser:

Thank you for the additional clarification. Unfortunately, it does not appear that you can enter on your VA tax return the passive loss information from Form 8582 in the same manner as it appears on your federal tax return. In other words, VA does not have a comparable form that mirrors what you have on Form 8582.

In connection with researching your question, the VA Tax Commissioner issued a ruling in 2020 on a tax matter not entirely dissimilar to your own. In its ruling regarding passive losses and the necessity of keeping two sets of tax records, the Commissioner stated the following:

“Essentially, a taxpayer engaging in passive activities will have to keep two sets of records for tax purposes. One for the IRS and one for the Department. Additional complications could arise should the taxpayer be deemed to be materially participating in an activity previously considered to be passive. Taxpayers are advised to attach a revised Form 8582 and computation schedule to their returns to report fixed date conformity adjustments from passive activities.” (https://www.tax.virginia.gov/laws-rules-decisions/rulings-tax-commissioner/20-25)

Thus, at least for tax year 2025, the only option you have, should you decide to file a VA tax return, is to report the passive income, and the prior passive loss carryover which effectively reduces your VA tax liability to $0. At least with filing a 2025 non-resident VA tax return, you will have a record of what you did should you ever need to produce it, or refer back to it.