Where to record S Corp losses and basis limitation on 1040

[MarinaEA]

The client has a loss that exceeds his basis.  Where and how do I enter this on K-1 or 1040? Where does the carryover loss show in Proseries? How to properly record and carry this forward on K-1 or 1040? If enter the K-1 as is, it populates the whole loss on Schedule E.  

[TaxGuyBill]

When filling out the K-1 worksheet, only enter the allowed amounts.

Manually keep track of unused loss to enter on future tax returns when Basis is restored (as "PYA", per Schedule E Instructions).

[MarinaEA]

oh wow, all manual huh. Wouldn't that cause a discrepancy with the IRS being that different amounts are on K-1 filed with 1120S vs K-1 filed with the 1040? 

Also, I am hearing that I need to file 6198 with it which will take care of the basis limitation. Is that so?

[TaxGuyBill]

The IRS doesn't complain if you claim MORE income (or less loss) than what they know about.  Besides, when claiming a loss you are required to attach a Basis statement to the tax return anyways (another thing that ProSeries does not do).

No.  Although some people use Form 6198 as a work-around of ProSeries limitations, that is the wrong way to do it.  Form 6198 is for "At-Risk" limitations, which is different than Basis limitations.

[MarinaEA]

Thank you for the information. 

Yes, proseries does not do any basis calculations. I have been doing basis statements in 1120S then attach a pdf file to the 1040. Is that the way to do it? There is no basis calculation in 1040, right?

[TaxGuyBill]

Correct.

[MarinaEA]

Thank you, sir.

I have a different question if I may ask. I have a client with rental remodel expenses - 30k: basically hardwood flooring, plumbing, fireplace. Depreciating this over 27.5 years seems quite a bit. I cant find any tax info specifically explaining how to depreciate these certain items and which asset type I should pick in proseries on the 4562 asset entry worksheet? Can I get your input on this? 

[TaxGuyBill]

All of those are considered part of the building, so you need to use 27.5 years for depreciation.

[MarinaEA]

I was looking in Pub 527 Resident Rental Property, and I found a table of MACRS Recovery Periods for Property Used in Rental Activities. Some have 7, 15 and 5 years like carpet. Do you think hardwood flooring could fall into this category as well or that would be a stretch? The table 2.1 with different depreciation methods is under "Recovery Periods Under GDS". 

What are you thoughts on this?

https://www.irs.gov/publications/p527#en_US_2020_publink1000219075

[TaxGuyBill]

Probably not.. 

Carpet is easily removed and the removal would not damage the building by just yanking on it.  Typical hardwood floors are much different.

A possible exception is if they are 'floating' floors, which is basically just setting them down on the subfloor, and they are not really attached.

[MarinaEA]

Thank you for your input!

[MarinaEA]

TaxGuyBill,

Trying to make sure that I do this correctly. So the client has a 80K loss with 10k basis for 2020. So I would enter a 10k loss on the K-1 1040 line 1 and where would I enter the carryover 70k loss next year if the basis allows? I don't see where to enter it on a Schedule E p2. Does this go on the K-1 Worksheet Section A Activity Adjustment to Income or Loss under column (b) suspended loss carryover from prior years? 
Thank you so much!

[TaxGuyBill]

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@MarinaEA wrote:

So I would enter a 10k loss on the K-1 1040 line 1

where would I enter the carryover 70k loss next year if the basis allows?

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Yes.

I don't think ProSeries even has an input for it.  So a work-around would be to add a second K-1 next year, using the same EIN but name it "PYA", and enter the usable amount that was carried forward.

[MarinaEA]

You seems to be very knowledgeable about basis. If I could ask another question.

The client has beginning basis of 5k plus net income for 2020 of 50k minus distribution of 60k and non deductible expense of 3k. His distribution is in excess of his basis, and I know basis cant go below zero. So, to my understanding, I need to report 5k as capital gain, but then what happens next year and what happens with 3k non deductible expenses? His beginning basis as of next year is zero, correct? Since that 5k is reported a capital gain to him, we do not have to carry that amount forward to deduct from his basis next year, correct? And what happens with those 3k non deductible expenses?