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Screen C-3 - Profit or Loss From Business - Passive, Other (1040)
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State allocation
If the following are true, select
Allocation
to access the spreadsheet: Client has at least one state return; you are viewing Client Organizer or input screen data entry; in the 4835 and F screens, the Description
field has data; in the C screen, the Principal business
field has data; in the Rent screen, the Property kind/location
field has data.Two methods (percentage or amount) of allocation can be used to allocate federal unit net income to the applicable states displayed in the State allocation spreadsheet.
note
Amount fields applicable to one state may not be applicable to another state. Those amount fields that do not apply to a particular state have been disabled (shaded). Amount fields that are not shaded are considered enabled for the applicable state.
- Percentage:Enter a percentage in XXX.XX format in the first field available in the State allocation spreadsheet. Select the state to which this percentage applies from the fieldview. Select the Apply button. The application will automatically calculate the amounts attributable to that state and display the amounts in the spreadsheet. The percentage entered for that particular state will appear below the state name for easy reference. If enabled, individual item amounts can be changed (overwritten) on the spreadsheet from the amount automatically calculated.
- Amount:In cases where a percentage of the federal amounts do not apply, individual item amounts, if enabled, may be entered in the spreadsheet for the applicable state. Zero (0) is a valid entry and will prevent the state amount from defaulting to the federal calculated amount. If an individual item amount field is left blank, the federal amount, if present, will be used in the state's calculation.
Build-up states that report or otherwise calculate income from these Schedules C, F, E and Form 4835 activities on an amount by amount basis may be allocated using a percentage only, while passive carryover amounts may be allocated by entering the state-specific carryover amounts within the State allocation spreadsheet.
Other states, which are typically AGI states that require net activity amounts only, may be allocated by percentage or by entering the net amount of activity income/(allowable loss) attributable to the specific state.
note
Passive activity carryover amounts are disabled for AGI states other than Arkansas, Kentucky, Montana, New York, and Oregon. Unlike income allocations, passive activity and section 179 carryover amounts apply to all residency statuses for CA, HI, MA, MT, OR, and WI, and part-year resident and nonresident statuses for NY.
The State allocation spreadsheet may be printed in a report format for future reference. Click the Print or Preview button in the lower portion of the spreadsheet. If licensed, you can also print to FileCabinet CS.
note
You may enter
0
(zero) in all of these fields.Specified service business
Enter
X
if the trade or business is a specified service business for purposes of the Qualified Business Income Deduction. The trade or business status is not determined automatically. The specified service business status is used when the Qualified Business Deduction – Simplified Worksheet is not used.Qualified business income (Force)
To calculate the Qualified Business Income Deduction, the application starts with the Schedule C, line 31 - Net profit then includes various additions and deductions, such as self-employment related deductions from qualified business income. To view the calculated amount, see the Qualified Business Income Calculation Worksheet for Schedule C. To use an amount other than the default, enter an amount in this field. Enter zero if the activity does not have any qualified income.
W-2 wages (Force)
The calculation for the Qualified Business Income Deduction uses the Schedule C, line 26 - Wages and line 37 - Cost of Labor. Enter an amount in this field to use an amount different than the default. W-2 wages for the trade or business are used only when the Qualified Business Deduction – Simplified Worksheet is not used.
Qualified property
Enter the amount of the unadjusted basis of qualified property used in this trade or business. When you use the asset module, the amount calculates and transfers to this field. This amount is used only when the Qualified Business Deduction – Simplified Worksheet is not used.
note
To identify the business assets as qualified property, go to the Asset tab and choose Setup, Activities, and then Enter a
Yes
in the field
Qualifies as a trade or business for Section 199A
.
Prop Reg Section 1.199A-4 aggregation grouping number
Enter a group number to include this trade or business in a grouping for the Qualified Business Income Deduction under the rules of Proposed Regulation Section 1.199A-4. All trade/businesses in the same group must use the same code. The Qualified Business Income Deduction Worksheet groups the trade/business into one component worksheet. The QBID – Schedule B – Aggregation of Business Operations Worksheet is produced only when the Qualified Business Deduction – Simplified Worksheet is not used. The Prop Reg 1.199A(c)(2)(i) Aggregate Group Disclosure grouping statement is included in the required statements.
Passive activity code
Enter the appropriate activity type code in the field provided. The available codes are listed in the table that follows and in the fieldview.
Code | Result | Return treatment |
|---|---|---|
1 | Other passive activity | Form 8582, Worksheet 3, All Other Passive Activities |
3 | No limitation applied (default) | No Form 8582 treatment |
Entities coded
1
are treated as passive and 3
as non-passive. If you enter passive carryovers for entities coded 3
, the application considers them to be former passive activities. Income and losses are considered passive or active as follows:- If the current-year net income is less than the prior-year suspended losses, both prior-year suspended losses and current-year net income report on Form 8582.
- If the current-year net income is equal to or greater than the prior-year suspended losses, neither amount is reported on Form 8582.
- If there is a current-year net loss, only the prior-year suspended losses are reported on Form 8582.
The passive portion of entities with a passive code of
3
are treated as other passives.Aggregation group
To include this activity in a passive grouping, enter the aggregation group number in this field. The application reports units with the same aggregation number as one item on the statement worksheets for Form 8582. All of the entities in an aggregation must have the same passive code.
note
Non-passive activities (code 3) cannot be part of an aggregate grouping. Use aggregation groups for Form 8582 passive activity purposes only. Each member of an aggregation group must have the same passive activity code. See Form 8582 instructions and IRS regulations for more information about proper groupings.
Reg. 1.469-4(d)(1) group
Enter a unique group number to include this activity in a Regulation 1.469-4(d)(1) grouping of a rental activity within a trade or business activity. When grouping activities under Reg. 1.469-4(d)(1), do not use a number that has been used in the Aggregation group field.
The entire group is nonpassive for reporting purposes. Each member of the activity must use passive activity code 3, that is nonpassive. Since the group is nonpassive, the group income does not report on Form 8582 and is not considered net investment income for Form 8960 purposes. The income or loss reports on the appropriate forms and schedules used regularly.
note
- Use Group disclosure code to make any required disclosures for the Reg. 1.469-4(d)(1) group.
- Use the aggregation grouping when the entire activity is considered rental real estate or other rental. Forms 8582 and 8960 will complete as necessary.
Group disclosure code
Enter the appropriate code applicable to this member of a passive activity aggregation group or Reg. 1.469-4(d)(1) group.
The application uses the code and the Aggregation group to produce the statement required by Rev. Proc. 2010-13. Under Rev. Proc. 2010-13, written disclosure statements are required to be filed with the tax return for the year in which two or more activities are grouped together for the first time (essentially serving as the election to group those activities), or for a year in which changes are made to existing groupings, including when a new activity is added to an existing group.
note
- No disclosure is required to be made to pre-existing groupings that remain unchanged. Once a grouping has been started, any change to the group must be disclosed per Rev Proc 2010-13. Careful tax planning is needed regarding if and when to group activities. Consult Form 8582 instructions, Rev Proc 2010-13, IRS Publication 925, and Thomson Reuters Checkpoint for more information on grouping activities.
- The group disclosure code can be used for the aggregation group and the Reg. 1.496-4(d)(1) group. Do not use the same group number for one type of group that is already entered for another grouping.
Significant participation hrs
Enter significant participation hours, if applicable, in this field.
- If significant participation hours are less than 100 for an activity, the activity is considered passive. It is not considered to be a significant participation activity.
- If total significant participation activity hours on the return are greater than 100 but less than 500, the overall losses from the SPAs are treated as passive. Overall income from these activities is recharacterized as non-passive.
- If total significant participation activity hours on the return are over 500, the calculation for theSignificant participation hoursfield is not performed. The determination of the passive or non-passive character of the entity or business is not determined by the application. You must code the activities' character.
Election history
Use the attached statement to record details about the elections taken for this Schedule C unit. The statement includes the following fields.
- Description:Enter a brief description of the election taken.
- Tax Year:Enter the tax year the election was taken.
- Effective Period:Enter the election's effective period. Some elections are perpetual, while others only cover the tax year taken.
- Comments:Enter any additional information about the election. For example, enter information about an election that was revoked.
note
- Enter the election number assigned to the election in the year it was taken. Learn how to view and edit tax elections to find a table of election numbers or review a list of all 1040 elections available.
- To print an election report, enterXin thePrint election reportfield inElect, located in theElectionsfolder.
- Election information proformas to theElection Historystatement.
- Non-activity-based elections are in theElection Historystatement in theElectscreen, located in theElectionsfolder. Activity-basedElection Historystatements are in the following locations to trackDescription,Tax Year,Effective Period, andComments.ScreenFolder1099RRetirement4835-2Farm RentalC-3BusinessF-3FarmRent-2Rent & Royalty8697, ACA TaxTaxesK1-7K1 1065, 1120SMortgIntItemized
Passive Activity Carryovers
Enter last year's regular and AMT passive-loss carryovers for this activity. This information proforma'd from last year's data, if applicable. If the AMT fields are blank, the application assumes there are no AMT carryovers. To enter state-related passive activity carryover amounts, use the St CO screen or use the State allocation spreadsheet.
Section 179 carryover
Enter last year's section 179 carryover for this activity. In future years, this information will proforma automatically. To enter state-related passive activity carryover amounts, use the St CO screen or select the Allocation button in the C-3 screen and use the State allocation spreadsheet.