Help with Form 8582 Passive Activity Loss - Can I carry forward multiple years of unallowed losses?

This is super helpful! But I'm confused about one thing - do I need to file amended returns for all those previous years to add the Form 8582, or can I just start using the accumulated losses now?

You don't need to file amended returns for all those previous years. The passive losses were already reported correctly on your tax returns via the K-1s - you just weren't tracking the carryforward on Form 8582. You can start using Form 8582 now to report your accumulated prior year losses and current year losses. The main challenge is documentation, not amendment. You need to be able to demonstrate how you calculated your total accumulated losses if asked. An accountant can help create a schedule showing each year's loss and how they accumulate to your current total.

That sounds promising but I'm skeptical. Do they just do the calculations or do they actually help you figure out how to document everything correctly for the IRS? I've got 15+ years of K-1s to deal with.

How do they handle the situation where some years you might have had some passive income that should have offset some of the losses? Do they analyze that too? My situation is complicated because we had a few profitable years mixed in with mostly losses.

They actually do both the calculations and help with documentation. They created a year-by-year worksheet showing each loss, any offsets from passive income, and the running total of unallowed losses. This gives you exactly what you need if the IRS ever questions your carryforward amounts. For situations with mixed profit/loss years, that's exactly what they're good at sorting out. Their system identifies years where passive income partially offset losses and makes the appropriate adjustments to your carryforward totals. They also account for any special situations like partial dispositions or other factors affecting your basis in the activity.

How does Claimyr actually work? I don't understand how they can get you through to the IRS when nobody else can. Seems like there would be a way to do this yourself without paying someone?

Yeah right. There's no way they can magically get through to the IRS when millions of people can't. The IRS phone system is completely broken - I tried calling 23 times last month and never spoke to a human. Sounds like a scam to me.

It's not magic - they use a combination of technology and call scheduling. They basically keep dialing with their automated system during the least busy times and then when they get through, they transfer the call to you. It's basically what businesses do with their automated systems, but for individuals. I was skeptical too but it actually works. They don't handle the tax questions themselves - they just get you connected to the actual IRS. I spoke with an agent who spent about 30 minutes with me going through my passive loss documentation questions. It saved me from making assumptions that could have caused issues later.

Can you explain more about this basis issue? I thought passive losses that weren't allowed just carry forward indefinitely. Are you saying there's another limitation?

There are actually two separate limitations you need to track. First is the passive activity loss limitation (Form 8582) which prevents you from using passive losses against non-passive income. These losses carry forward indefinitely. The second limitation is your basis in the partnership. You can only deduct losses to the extent of your basis. If distributions and losses have reduced your basis to zero, additional losses are suspended due to the basis limitation, not just the PAL rules. When you later increase your basis (by contributing capital or being allocated income), you can start deducting those suspended losses. This gets complicated because you need to track both limitations separately. That's why I recommend working with a professional who understands partnership taxation when you have multiple years of losses.

I've had good luck with H&R Block Premium. It's not perfect but it does have a worksheet for entering prior year passive losses. The key is having your previous year's Form 8582 (or reconstructing it) so you know exactly what number to enter.

This is exactly the roadmap I needed! Quick question though - when you created that year-by-year spreadsheet, how did you handle years where you might have had some passive income from other sources that should have offset the LLC losses? I think I might have had some rental income from a small property I owned individually that could complicate the calculation. Also, did you end up needing to get any kind of formal letter or documentation from your accountant to support the carryforward calculation, or was your spreadsheet sufficient backup?

Great question about passive income from other sources! You absolutely need to account for that in your calculations. Passive income from your individual rental property would have offset passive losses from the LLC in those years, reducing your accumulated carryforward. For my spreadsheet, I created columns for: LLC passive loss, other passive income (like from individual rentals), net passive loss for the year, and cumulative carryforward. The IRS expects you to net all passive activities together each year. As for documentation - my accountant created a formal "Passive Activity Loss Analysis" memo that referenced my spreadsheet and explained the methodology. This wasn't strictly required, but given the large accumulated amount and multiple years involved, we wanted something that looked professional for audit protection. The spreadsheet alone probably would have been fine, but the formal analysis gave me peace of mind when claiming $38k+ in accumulated losses. Pro tip: If you had any years where you disposed of partial interests in other passive activities, that can also affect your calculations. Those are the kinds of details where having a professional review everything is worth the cost.

You're absolutely right that you need to track both limitations separately! If your basis went to zero in 2015, then losses from 2016 onward would be suspended due to insufficient basis, NOT due to passive activity limitations. These are called "suspended losses" and they don't carry forward on Form 8582 until you restore basis. Here's how it works: First, losses are limited by your basis in the partnership. Any losses that exceed your basis are suspended and wait for you to increase basis (through additional contributions or future income allocations). Only losses that pass the basis test then go to Form 8582 for the passive activity limitation test. So if you had zero basis in 2015, your Form 8582 carryforward would only include pre-2015 losses that were disallowed due to passive activity rules, not the post-2015 losses that were suspended due to basis limitations. For cost - I've seen reconstructions like this range from $1,500-4,000 depending on complexity and years involved. Given the potential basis issues in your situation, it's definitely worth having a professional evaluate whether you actually have significant usable passive losses before investing in the full analysis. Many CPAs will do an initial consultation to assess the situation for a few hundred dollars.

You raise an excellent point about material participation! This is actually a crucial consideration that can significantly impact your passive loss calculations. The IRS has seven specific tests for material participation, and if you meet any of them in a given year, your losses from that activity are NOT subject to passive activity limitations. The most common test that trips people up is the 500+ hour test - if you spent more than 500 hours in any year on the rental activities (including management, maintenance, tenant relations, etc.), you'd be considered a material participant for that year. There's also a "significant participation" test and several others that could apply. For your reconstruction, I'd strongly recommend analyzing this year by year rather than assuming all losses are passive. Here's why: if you were a material participant in certain years, those losses could have been used immediately against your ordinary income, meaning they wouldn't carry forward as passive losses at all. This could actually reduce your accumulated passive loss carryforward but might mean you already got the tax benefit in those years. Keep detailed records of your time and activities for each year if possible. Even rough estimates based on calendars, emails, or bank records showing property-related activities can help establish your participation level. A tax professional experienced with passive activity rules can help you work through each year's classification - it's definitely worth the complexity given the potential tax impact!