Indiana Nonresident - State Passive Loss Carryforward?

[TaxGirl3]

Maryland resident invests in Indiana property.  Bonus depreciation from a cost seg results in a large federal loss (allowed due to unrelated passive gains), but Indiana decoupling doesn't allow as large a loss.  In future years there are Indiana losses (and federal income) because Indiana depreciation exceeds federal depreciation.  Should there be an Indiana-specific passive loss carryforward that's allowed when the property is sold?  How should this be entered in Lacerte?  Thanks!

[sjrcpa]

Wouldn't this be handled by depreciation adjustments in future years?

I'm not familiar with IN, but for example that's how it would be handled on a MD return.

[TaxGirl3]

Do you mean that, if sold, the gain calculated on the Indiana partnership tax return would be less than the federal gain?  That would be correct and the gap would narrow over time. 

My question is if, for example, in year 2 there's $1k of federal income and $200k of Indiana loss (due to, in MD terms, a 'decoupling subtraction'), does that loss carry forward for Indiana purposes to offset the eventual sale (i.e. is there a separate Indiana passive loss carryforward or is the year 2 loss effectively lost)?   Am I thinking about this the wrong way?

[sjrcpa]

Each year the IN income or loss would be adjusted by the difference between federal and IN depreciation.

If sold before being fully depreciated for IN, there would be a basis difference resulting in different federal and state gain or loss.

[TaxGirl3]

Yes.  But are the annual IN losses 'lost' at the 1040 level or do they carry forward?  

Said another way, if the property is eventually fully depreciated for both federal and IN purposes and the sale generates a $1M gain at the entity level, is there an individual level IN offset to that gain of all the prior year's losses (due to depreciation taken) that did not offset any income?  *For federal purposes, the depreciation offset other income in year 1.   

Or, do we not track IN passive loss carryforwards separately from federal passive loss carryforwards for IN and the annual IN losses are lost and never utilized?

[sjrcpa]

I don't know.