When an S corporation sells or disposes of an asset for which a Section 179 expense deduction was previously taken, the resulting gain or loss isn't reported on the S corporate return. Instead, the information needed to compute any gain or loss and Section 179 recapture is passed through to the shareholder(s) on line 17, Code K of the Schedule K-1.
Follow these steps to enter Section 179 recapture:
- Go to Screen 17, Dispositions.
- Select Carryovers/Misc Info from the left-side navigation menu.
- Scroll down to the Form 4797 section.
- Locate the Recapture 50% or Less Business Use subsection.
- Enter the Depreciation Allowable field.
- Enter the total amount of recapture in the Section 179 expense deduction field.
- This input flows into the calculation for Form 4797, line 33. The calculation subtracts the depreciation that would have been allowed from the 179 deduction taken to determine how recapture is needed.
- Enter any other information applicable.
To report Section 179 recapture on Form 4797 and include the K-1 gain or loss for the Basis, At-Risk and Passive claculations you'll need to follow both sets of instructions.
Follow these steps to enter Section 179 recapture as ordinary income and link it to Schedule K-1:
- Go to Screen 17, Dispositions.
- Under the Dispositions (Schedule D, 4797, etc.) section, enter any applicable fields.
- To generate a gain enter the Sales Price and leave Cost or basis blank.
- Scroll down to the Form 4797 section.
- Enter "-1" in the field Depreciation allowed (-1=none, triggers 4797).
- Scroll down to the Corresponding Activity Information - Passive (8582) / At-Risk (6198) / Investment Tax (8960) / Qualified Business Income (QBI) section.
- Select Schedule E (S corporation) from the Form number of related activity (Ctrl+T) dropdown menu.
- Enter the Activity name or number (Ctrl+T).
- Check the Include in at-risk/basis limitations box.
- Under the Passive Disposition subsection, enter a 3 in the 1 = Complete Disposition, 2 = Partial, 3 = Separately stated on K-1 field.
- You should complete this field if the asset being disposed of was used in a passive activity.
- This input reports the Section 179 recapture as ordinary income on page 1 of Form 4797. It also includes the recapture in basis calculations.
