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How to complete Form 7203 in Lacerte

SOLVEDby IntuitLacerte Tax187Updated April 08, 2022

This article will help you:

  • Enter basis limitations for S Corp K-1s.
  • Generate Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations.

To enter basis limitation info in the individual return:

  1. Go to Screen 20.2, S Corporation Information.
  2. Scroll down to the Basis Limitation (7203) section.
  3. Enter your client’s Stock basis at beginning of year to print on line 1.
    • This entry is mandatory to generate the form.
  4. The program will automatically calculate many of the increases and decreases based on your K-1 entries. You may need to enter the following items in this section, which aren’t automatically calculated:
    • Basis from capital contributions made or additional stock acquired during year for line 2.
    • Excess depletion adjustment for line 3j.
    • Recapture of business credits for line 3l.
    • Other items that increase stock basis for line 3m.
    • Business credits (sections 50(c)(1) and (5)) for line 8c.
    • Other items that decrease stock basis for line 13.

The program will only produce Form 7203 for K-1s where your client is claiming a loss, received a distribution, disposed of stock, or received a loan repayment. Other activities will still generate a Basis Limitation Worksheet to keep for your records.

If the return you're working on has CA attached, and the state source amounts differ from the federal, the CA return will include a worksheet that displays a copy of the federal Form 7203 with the state source amounts for reference. This will show as 7203 Wkshts in your CA forms list.

To force Form 7203 for S corporation:

The program automatically computes the traditional Shareholder’s Basis Computation worksheet. Select the following box if you wish to use the Form 7203 for the Shareholder’s Basis Computation instead of the worksheet.

  1. Go to Screen 28, Schedule K Miscellaneous.
  2. Select the box Use Form 7203 for the Shareholder Basis Computation (code 15).

To enter shareholder debt basis:

If your client only has one loan to the S corporation:

  1. Enter the Loan balance at beginning of year, if any.
  2. Select the Type of debt.
  3. Enter any Additional loans made during the year that increased the outstanding balance of this loan.
  4. Enter the Debt basis at beginning of year, if different from the loan balance at the beginning of the year.
  5. If applicable, enter the amount of Adjustments to debt basis.

If your client has multiple loans to the S corporation:

  1. Enter the total beginning balance for all loans in Loan balance at beginning of year.
  2. Leave the Type of debt blank.
  3. Enter the total of all Additional loans made during the year.
  4. Enter the total Debt basis at beginning of year, if different from the total loan balance at the beginning of the year.
  5. If applicable, enter the total Adjustments to debt basis for all loans.
  6. Use the Shareholder Multiple Debt Basis grid to enter the details of each loan:
    • Select the Type of debt
    • Enter the Loan balance at beginning of year
    • If applicable, enter Additional loans made during the year
    • If applicable, enter the Principal portion of debt repayment
    • Enter the shareholder’s Debt basis at beginning of year, if different from the loan balance at the beginning of the year entered on this line
  7. Verify that your grid totals equal the amounts you entered in steps 1-5.

Multiple debt basis example

PCG_LSC_L8Za0pLe2_001.png

PCG_LSC_L8Za0pLe2_002.png

If your client had more than three debts, additional form(s) 7203 will generate to show the loan details.

The S Corporation program in Lacerte generates the Shareholder Basis Computation worksheet. Below are instructions on how to enter the information from the S Corporation worksheet into the 1040 K-1 input screens.

The line numbers in the following table refer to the line numbers on the Shareholder Basis Computation worksheet that the S Corporation program produces:

Line numberDescription
Line 1 Stock basis at beginning of tax year:This amount should be entered in the Basis Limitation section in Adjusted basis at beginning of year (-1 = none) (Ctrl + E)(MANDATORY) (Screen 20.2). This input is required to trigger the basis schedules in the Individual program. If there is no stock basis at the beginning of the year, enter -1.
Lines 28 (Increases), 13-24 (Decreases):These lines do not need to be input into the basis limitation section of the K-1 input screen. The basis limitation will automatically pick up the income and losses from the K-1 input screen.
Lines 9 Net gain on disposition of Section 179 assets: If there is an entry for "Net Gain on dispositions of 179 assets," information from the sale should be attached to the K-1 that the shareholder received. Use this information to enter the sale as described below in the Tying gain entered on disposition screen to K-1 expander below this table. 
Line 10 Oil and gas depletion in excess of basis:If oil and gas depletion in excess of basis has been input in the K-1 input screen, it will be included in the basis calculations automatically.
Line 11 Other Increases:There are several items that can appear on line 11:

1. "Adjustment to restore debt basis" should not be input.  The program will compute this automatically.

2. Adjustment for deemed dividends will be included automatically, if the dividend has been input in the K-1 input screen. If it has not, an increase to basis should be input in Other current year increases to basis (Screen 20.2).
Line 25 Total foreign taxes:If you have an amount on line 25, see the Including foreign taxes in the basis limitations expander below this table.
Line 26 Section 59(e) expenses:If the expenses from line 26 have been input in the K-1 input screen, they will be included in the basis calculations automatically.
Line 27 Prior year loss in excess of basis:Amounts on line 27 of the Shareholders Basis Computation should be entered in the Basis Carryovers section of the K-1 input screen. This input is towards the bottom of the screen.
Line 28 Other Decreases: There are several items that can appear on Line 28, Other decreases:

a. If there is an amount with a description of "Loss in excess of basis," do not enter this amount in the Schedule K-1 input screen. It will be computed automatically.

b. If there is an entry for "Loss from Section 179 assets", information about the sale should be attached to the Schedule K-1 that the shareholder received.  Use this information to enter the sale as described below in the Tying gain entered on disposition screen to K-1 expander below this table.

c. Any other Decreases should be input in Other decreases to basis (Screen 20.2).
Line 29 Property distributions (including cash): Amounts on line 29 of the Shareholders Basis Computation (reported on Scheduled K-1, Line 16) should be entered in (16D) Distributions in the Line 16 - Items Affecting Shareholder Basis section in Screen 20.2, S Corporation Information.
Lines 32 Debt basis at beginning of tax year: Amounts on line 32 should be input in Debt basis at beginning of year, if different (Screen 20.2).

You must also enter the beginning principal amount of the loan in Principal amount of debt S-Corporation owes shareholder (Screen 20.2).
Line 33 Adjustments to Debt Basis: There are several items that can appear on Line 33, "Adjustments to debt basis":

a. If there is an amount with a description of "Loans made to S Corp during tax year by shareholder," enter this amount in Loans made to S-Corp during the year (Screen 20.2).

b. If there is an entry for "Adj. to restore debt basis from prior year losses/deductions," do not enter this amount in the Schedule K-1 input screen. The program computes this amount in accordance with Internal Revenue code section 1367(b)(2)(B) which states that any net increase to basis increases debt basis before stock basis. "Net increases" is the amount by which current year income and other increases to basis exceed current and prior year losses, and other decreases to basis.

c. If there is an amount with a description of "Loan repayments," enter this amount in (16E) Repayment of loans from shareholders under the Line 16 - Items Affecting Shareholder Basis section in Screen 20.2, S Corporation information.

d. If there is an amount with a description of "Losses/Deductions in excess of stock basis," do not enter this amount in the Schedule K-1 input screen.  It will be computed automatically.

e. Any other Decreases should be input in Other decreases to basis (Screen 20.2).

Gain recognized on repayment of loan: The Individual program will calculate the gain recognized on the repayment of a loan with a reduced basis. This will be calculated on the Shareholder Gain Recognized on Loan Repayment worksheet. The resulting amount will flow to the Schedule D, Line 12.

If you have distributions in excess of basis, per Internal Revenue Code section 1368(b)(2), if the S-Corporation has no earnings and profits, this excess distribution is a capital gain.  Enter the amount of the excess as a capital gain in Screen 17, Dispositions (Sch. D, 4797, etc). Also enter this gain in Other current year increases to basis under the Basis Limitation section of Screen 20.2, S Corporation Information.

To associate a disposition entered in Screen 17, Dispositions, with the basis calculations:

  1. Add an asset in Screen 17, Dispositions, and enter the basic sale information (description, date acquired, date sold, etc).  This step is not necessary if the K-1 transfer utility has already bridged the information for this sale into Screen 17.
  2. Within the input for that asset, go to the section of the screen titled Related Activity Information - Passive (8582)/At-Risk(6198).
  3. In Form Number of Related Activity (Ctrl+T) (Screen 17), select Schedule E (S-Corporation).
  4. Enter the name or number of the activity in Activity Name or Number (Ctrl+T) (Screen 17).
  5. Enter a 1 or check the box for Include in At-Risk/Basis calculation (Screen 17).

To enter Foreign Transactions, in the Section list, select Line 14 - Foreign Transactions and complete the applicable fields:

  • Select the Form 1116 this is associated with in Screen 35 in Form 1116 Name or No.
  • Enter the name of the Country that this information pertains to. When Form 1116 Name or number is left blank, the program uses the entry in Name of Country, along with Category of income to determine which 1116 to send the foreign information to.
  • Enter the category of foreign income as shown on schedule K-1. When Form 1116 Name or number is left blank, the program uses the entry in Name of Country, along with Category of income to determine which 1116 to send the foreign information to.
  • Line 14 Code C,D,E,F - Partners Foreign Gross Income - Enter the partners foreign gross income, as shown on schedule K-1. This amount will print on Form 1116 Part I.
  • Line 14 Code G - Interest expense allocated to foreign sources - Enter the interest expense, as shown on Schedule K-1. This amount will print on Form 1116 Part I.
  • Line 14 Code H,I,J,K Other foreign deductions apportioned or allocated - Enter the interest expense, as shown on Schedule K-1. This amount will print on Form 1116 Part I.
  • Line 14 Code L,M - Foreign taxes withheld (US Dollars) - Enter the foreign taxes withheld, in US Dollars. This amount will print on Form 1116 Part II.
  • Foreign taxes withheld (Foreign currency) - Enter the foreign taxes withheld, in foreign currency. This amount will print on Form 1116 Part II.
  • Date paid or accrued - Enter the date the taxes were paid or accrued. This amount will print on Form 1116 Part II.
  • Type of income withheld on - Enter type of income these foreign taxes were withheld on. This entry is needed to determine which category of income to report the withholding under on Form 1116 Part II. If the selection has (Accrued) next to it, as opposed to (Paid), then the accrued checkbox on Form 1116 Part II will be checked.

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