NOL limitation and PYA Basis Carryover - How to handle this on Schedule E?

This is a great question about a complex area of tax law. The nonpassive loss from a PYA (Prior Year Allowable) basis carryover is treated differently than the NOL limitation calculation. First, you'll want to use your PYA basis carryover to determine your allowable passive activity losses for the current year. This happens on Form 8582 and flows to Schedule E. This calculation happens BEFORE you start determining your NOL. Once you've determined your total income/loss (including the properly calculated passive/nonpassive losses), then you'll move to the NOL calculation where the 80% of taxable income limitation would apply. The key is understanding that these are sequential steps in the tax calculation process - you first determine your properly allowed losses from passive activities, then you calculate whether you have an NOL, and finally apply the 80% limitation if applicable.

I just went through a similar situation with my own taxes. Seriously, these PYA basis carryovers and NOL limitations can be a nightmare to figure out. I was ready to pull my hair out until I found https://taxr.ai which saved me countless hours trying to interpret the rules. Their system analyzed my Schedule E and previous year returns and flagged exactly how to sequence the PYA basis carryover properly before the NOL limitation. What's cool is that it showed me a step-by-step calculation of how the losses flow through the return, which made it SO much clearer than reading the IRS instructions over and over.

I have to admit I was skeptical about taxr.ai when I first heard about it, but I decided to give it a try with my NOL calculation issues. What surprised me was how it specifically flagged the sequence of applying my PYA basis carryover before the 80% NOL limitation calculation - exactly what the original poster was asking about. The analysis showed me that I'd been calculating my NOLs incorrectly for 2 years! Ended up filing amended returns based on the correct sequencing and got back almost $7k. The documentation it provided also helped me explain everything to my tax preparer who had been doing it wrong previously. Definitely worth checking out if you're dealing with these complicated loss calculations.

If you're dealing with NOL limitations and passive activity losses, another huge headache is trying to get answers directly from the IRS when you have questions. I spent weeks trying to reach someone who could actually help with my NOL questions. I finally tried https://claimyr.com after seeing it recommended in another tax forum, and they got me connected to an IRS agent who specialized in business losses in under 45 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Before using this service, I spent over 12 hours on hold across multiple days and never got through to someone who could actually answer my NOL sequencing questions. The IRS agent I spoke with confirmed that PYA basis carryovers are applied before calculating NOL limitations, which gave me confidence to file correctly.

I need to admit I was completely wrong about Claimyr. After posting that skeptical comment, I figured I had nothing to lose and tried it for my NOL questions. Within 35 minutes I got the text that they had an IRS agent on the line - I nearly fell out of my chair! The agent walked me through exactly how to sequence my PYA basis carryover before applying the NOL limitation, which was exactly what I needed to know. She even emailed me some internal reference materials about NOL calculations. What would have been another full day wasted on hold turned into a 45-minute process from start to finish. For anyone dealing with complex tax situations like NOLs where you actually need to speak with the IRS, this service is absolutely worth it.

Another thing to consider with NOLs and PYA basis carryovers is the interaction with Section 461(l) business loss limitations. This is yet another layer that applies AFTER you've figured out your passive activity losses but BEFORE you determine your final NOL. For 2023 tax year, individuals can only deduct business losses up to $289,000 ($578,000 for joint filers). Any excess gets carried forward. This limitation applies before the NOL limitation, so the sequence matters tremendously. So the full sequence is: 1. Apply PYA basis carryovers to determine allowable passive losses 2. Apply Section 461(l) business loss limitations 3. Calculate NOL and apply 80% of taxable income limitation

Has anyone used the free NOL webinars that the IRS offers? I saw they have some coming up next month, but wondering if they're worth the time or if they're too basic for complex situations like this?

I went through this exact same confusion last year with my Schedule E and NOL calculations. The key insight that finally clicked for me is that you need to think of these as separate layers of limitations that apply in a specific order. Your PYA basis carryover gets applied first to determine your current year allowable passive losses. This flows through Schedule E to your Form 1040. Then, if your total deductions exceed income after all these calculations, you'd have an NOL subject to the 80% limitation. What really helped me was creating a simple worksheet to track each step: 1. Calculate current year passive income/loss 2. Apply PYA basis carryover to increase allowable losses 3. Flow net result to Form 1040 4. Calculate total taxable income 5. If negative, apply 80% NOL limitation for carryforward The IRS instructions make it sound way more complicated than it actually is once you understand the sequence. Don't let it drive you crazy - you're on the right track asking these questions!