S-Corp Stock Basis with Net Losses and Cap Gains

[warrencmb]

Trying to figure out my EOY basis given net loss from non-passive income and cap gains. Below are some sample figures.

BOY Stock Basis	1000
Ordinary Business Income (Loss)	(10,000)
Short Term Capital Gains	10,000

The capital gains were from trading stocks in the stock market using the S-Corp account to offset the ordinary loss.

The way I understand it, both the Loss and Cap gains are are reported in Schedule K-1 (Lines 1 & 7). Short term capital gains are going to be a pass-thru to my 1040 (reported in Schedule D) where I have to pay taxes on the 10k. However, both Schedule E (Part II) and Form 6198 (At-Risk Limitations Part I) are cancelling off  the two numbers from Schedule K-1 which offsets the loss.

So my question is, shouldn't my basis increase by 10k due to the pass-through capital gains for which I'm paying taxes and therefore I should be able to claim the 10k loss (since my basis is 11k)?

Any help is much appreciated.

[Anonymous]

did you indicate you materially participate? if not, you're telling TT  the loss is passive and the STCG is portfolio.  thus the $10,000 loss won't be allowed but the gain will be reported. form 6198 should be showing on line 1 -$10000 line 2a $10000 and line 6 $1000.  do other input should be needed

[warrencmb]

Hi @Anonymous,

Yes, I did indicate I materially participated. Here's what form 6198 looks like,

Line	Amount
1 - Income/Loss	(10,000)
2a - Schedule D	10,000
5 - Add (1 and 2a)	0
6 - Adjusted Basis	1,000
10b - Basis after decreases	1,000
20 - Amount at risk (10b)	1,000
21 - Deductible loss (smaller of line 5 or 20)	0

I don't see how I can deduct the 10k loss.

[Anonymous · Accepted solution]

look at schedule D line 5 - should be $10,000 gain. look at schedule e page 2 column (i) should be your $10,000 loss.  TT should handle the k-1 reporting automatically as described above. it worked for me.  the form 6198 is probably not needed since it seems there are no amounts that you are not at risk (if you were to change the ordinary loss to say $15,000 then the 6198 will come into play. basis/at risk starts at $1,000 goes up by income - stcg of $10,000 giving at risk basis of $11,000 and that allows $11,000 of ordinary losses) ) 

[warrencmb]

@Anonymous 

Okay, I had to check the box All my investment is at risk and it picked up the loss this time. Thank you very much for the explanation and help. Really appreciate it!