My schedule K-1 includes my whole loss, instead of being limited to my basis...

[remanabusiness]

I just filed my s-corp taxes and the schedule K-1 generated includes the full loss for the year rather than just what would be allowed based on my increase in basis. It also includes a carry-forward that I did not enter. I did not have this issue last year and so filed before seeing what was included on the K-1. Do I need to amend? If so, how do I correct the issue? I entered the APIC in the balance sheet and am not sure how else to handle this correction. Do I use section 199A to adjust out what should not be allowed manually? Or should I just have my CPA adjust what he carries into our personal filing? Thanks!

[JamesG1]

What was the nature of the carryforward that is listed on your Schedule K-1?  Please clarify.

On your personal income tax return, IRS form 7203 is used to calculate any limits on the deductions you can take for your share of S corporation deductions and credits.

Your 2023 Federal 1040 income tax return may have included IRS form 7203 if losses were reported.

See also here.

[remanabusiness]

Thank you for the response! Regarding the carry-forward loss, it is listed in Part III line 35. In column A of this section it lists the Ordinary business Loss for the current year (which I shared in my OP is too high according to my increase in basis) and then in column B 'Carryover Amounts from the previous year' it lists another amount that I did not enter. Perhaps this is carried forward from another year? 

I am not familiar with form 7203 but will follow up with my CPA to see whether or not this was used last year. Is that the best way to correct for the loss that should be allowed? Thanks!

[JamesG1]

Effective for 2021, the IRS required S corporation shareholders to prepare and attach IRS form 7203 to the taxpayer's form 1040 income tax return to track and report stock and debt basis.  Other methods were used prior to that year.

For Schedule K-1 (Form 1120-S), I am not seeing Part III line 35, nor column A or B.  Perhaps these are part of attached schedules.  Was such an amount reported the previous year?

[AmeliesUncle]

When entering your K-1, you manually only enter the amount that is allowable.  You then manually carry forward the amount that is not allowed due to Basis.

Form 7203 should be part of the TurboTax return you are preparing.   If you or your CPA has a Basis calculation, that basically what Form 7203 does.

For the carryover, you mentioned line 35.  Is that on Schedule E?  Do you have a K-1 from an Estate or Trust?  Is this the final year of the Estate or Trust?

[user17733408897]

When you say "When entering your K-1, you manually only enter the amount that is allowable", are you referring to Part III, Box 1, on the Schedule K-1? So we list the allowable loss even if our actual K1 says different?

I have been trying to resolve this issue by entering 0 into Form 7203- Part III, 35 c (allowable loss from stock basis), but I keep on getting a red box.  @AmeliesUncle

[PatriciaV]

A loss on Form 7203 Part III Line 35(c) requires an entry in Part I Line 10 (Stock basis after distributions). A loss amount is not allowable if it exceeds your basis.

@user17733408897 

[user17733408897]

Right.  I am trying to make the loss not go to Schedule E, but it keeps on claiming the loss.  I can't seem to put anything into Box 10 without overriding it and then it turns red.  @user17733408897 

[AmeliesUncle]

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@user17733408897 wrote:

When you say "When entering your K-1, you manually only enter the amount that is allowable", are you referring to Part III, Box 1, on the Schedule K-1? So we list the allowable loss even if our actual K1 says different?

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Yes.  However, I've been told that modified number (rather than the original number) will flow to the 7303, so you'll need to modify the 7303 to reflect the original number on the actual K-1.

Next year (or whenever Basis is restored), you'll enter a second K-1 with the then-allowable amount of the carryover.  Call the K-1 "PYA".  Then you'll need to modify the 7303 again to NOT reflect that carryover amount on the second K-1.

[user17733408897]

Thank you! I'll do that.