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INCOME USED TO RESTORE DEBT BASIS

gmb1040
Level 2

THE S-CORP SHAREHOLDER BASIS COMPUTATION INCLUDES THE ADJUSTMENT TO RESTORE DEBT BASIS, BUT I DO NOT SEE HOW TO INPUT THAT IN THE INDIVIDUAL MODULES, AS IT DID NOT IMPORT.  THERE IS A LINE FOR IT ON THE INDIVIDUAL'S BASIS WORKSHEET, BUT IT IS BLANK.  WHERE EXACTLY CAN I INPUT THIS AMOUNT?  

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PhoebeRoberts
Level 9
Level 9

Then you do have income! Yeah, I agree it's the PPP that's the problem, because I can replicate your results.

If you omit the PPP income from the Line 16B Other tax-exempt income field, and override the Current Year Income from S-corp, that seems to get a tolerable presentation. I agree that this is not a particularly desirable course of action or presentation, but it seems to come out okay in the end - no diagnostics, at least.

Edited because I typo'd my Lacerte input:

Screenshot 2021-03-03 112934.png

Screenshot 2021-03-03 113013.png

 

 

 

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11 Replies 11
PhoebeRoberts
Level 9
Level 9

Income flowing through from the K-1 in excess of distributions and deductions automatically restores debt basis before stock basis. No special entry is needed.

gmb1040
Level 2

Thanks for your response, Phoebe.  It does calculate correctly, and automatically, in the S-Corp module, but it is not calculating in the individual module.  I had to override the beginning basis and manually input the income used to restore debt basis; however, the pre-printed line description "income used to restore debt basis" in the basis limitations statement is blank, and I do not see anywhere to input it.  I am guessing this is not going to be an isolated problem, so I would like to know how to handle this from now on.

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PhoebeRoberts
Level 9
Level 9

In the 25 years I've been using Lacerte, I have never had to override the debt basis calculation in the 1040 package. Nor do I have to make any overrides to get it to do it right this year.

Basis worksheet:

Screenshot 2021-03-03 092704.png

K-1 input:

Screenshot 2021-03-03 092819.png

Basis Limitation input:

Screenshot 2021-03-03 092958.png

 

 

 

gmb1040
Level 2

Phoebe, I am a big fan of visuals!  Thanks for that!  I have a loss in current year, and a repayment of shareholder debt that was used to take previous losses.  How did you share screen shots?  That would be helpful to pin point where I need a correction. 

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PhoebeRoberts
Level 9
Level 9

In Win10, Windows Key + Shift + S opens a screen capture tool. It grays out the screen, you select the area to capture with your mouse, and when you release the mouse it gives you a little "click here to edit and save" option. Click that, click the Save icon, save somewhere you can remember, then use the camera icon at the top of the message input box to upload the image file.

If you have a loss in the current year, how do you have income to restore debt basis? If low basis / no basis debt was repaid, you do have a gain.

Step 1: Enter the repayment into the K-1 input screen:

Screenshot 2021-03-03 100306.png

Step 2: Lacerte calculates the gain on repayment, reports it on Line 12 of Schedule D, and adjusts the basis schedule automatically. READ YOUR DIAGNOSTICS to see that Lacerte assumes that a) there's a written note (so the client gets capital gains treatment) and b) it's long-term. There are references to the relevant Rev Ruls and directions for overriding if Lacerte is assuming wrong.

Screenshot 2021-03-03 100444.png

 

The "income used to restore debt basis" line doesn't get used, because there's no current-year income from the K-1 itself. (The 1120S basis schedule doesn't have the same presentation as the 1040 basis schedule; that's okay.)

 

 

gmb1040
Level 2

Thanks for the tip!  This is a weird year, as there is PPP forgiveness, which flows through as tax-exempt income.  Maybe that is my problem.  Here are my inputs:

S-Corp K-1 input

gmb1040_0-1614787958477.png

S-Corp Basis schedule:

gmb1040_1-1614788027174.png

Individual module as imported from S-Corp module:

gmb1040_2-1614788094400.png gmb1040_3-1614788111876.png

Individual basis statement:

gmb1040_4-1614788142293.png

My thought is that the stock basis should be zero, as opposed to the $10678 (which is the income used to restore debt basis).  I did override the beginning debt basis to include the $10678, so that my ending debt basis agreed to the S-Corp module debt basis.  Guidance is much appreciated!

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PhoebeRoberts
Level 9
Level 9

Then you do have income! Yeah, I agree it's the PPP that's the problem, because I can replicate your results.

If you omit the PPP income from the Line 16B Other tax-exempt income field, and override the Current Year Income from S-corp, that seems to get a tolerable presentation. I agree that this is not a particularly desirable course of action or presentation, but it seems to come out okay in the end - no diagnostics, at least.

Edited because I typo'd my Lacerte input:

Screenshot 2021-03-03 112934.png

Screenshot 2021-03-03 113013.png

 

 

 

View solution in original post

abctax55
Level 15

@PhoebeRoberts 

Just noticed the new avatar....  👍

Former Chump..umm... AllStar...This message was typed from 6 feet away so you can safely read it immediately.

If a post answers your question, click on *Accept as solution* for future searches
PhoebeRoberts
Level 9
Level 9

FYI I edited my attached pictures for my proposed fix, because a) I had a bunch of typos and b) I'd initially missed that you'd already finagled some of the debt amounts so had tried to match your 1040 presentation, not the 1120S presentation that was actually the goal.

gmb1040
Level 2

Phoebe, you get a gold star!  I do like your presentation better than what I had with the overrides.  🙂  Thank you so much for your help!

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PhoebeRoberts
Level 9
Level 9

FYI, the 3/4/2021 update changed the 1120S presentation. PPP forgiveness is no longer restoring debt basis in the 1120S basis schedule, either.