If a partnership filed a composite tax return for a specific state, then do I have to file that state tax return as an individual?

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June 6, 2019
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Best answer by WillK

It depends on the state, but a majority of the states do not require an individual to file a personal state tax return if a composite return was filed. You will need to check your states regulations on this.

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BeckyLeeH

AI Overview
Learn moreIn many cases, filing a composite state return on behalf of a K-1 partner means that the partner may not be required to file a separate individual state tax return in that state. The composite return generally covers the K-1 income and potentially allows for certain deductions or credits, including passive activity losses, depending on state regulations.However, there are important caveats:

State Specific Rules: Each state has its own unique tax laws regarding composite returns and how they interact with individual filing requirements. You must verify the specific regulations of the state in question. Some states may still require a personal return even if a composite return is filed.
Passive Activity Loss Carryover: While a composite return might handle the passive activity losses for the current year, you may still need to file a personal state return to ensure proper tracking and carryover of those losses for future years, especially if they exceed passive income in the current year. Losses that can't be used in the current year are carried forward to future years.
Basis and Limitations: The amount of loss you can claim may be limited by your basis in the partnership and other rules. These limitations need to be properly applied, and filing a personal return can help ensure this.
Receiving a Refund: If a composite return resulted in withholding, and you believe you are due a refund, filing a personal return is the only way to claim it.

In summary, while a composite state return may simplify things by potentially eliminating the need for a full individual return, it is crucial to consult the specific state's tax regulations to confirm filing requirements and determine if filing a personal return is necessary to secure and carryover passive activity losses. It's best to err on the side of caution and file a personal return if there are any doubts about the proper handling of passive activity losses and their carryover.

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