I inherited shares in a real estate rental corp. indirectly from my mother 10 years ago, and have only recently found my cost basis for the Oct. '18 property sale and disbursement of my mid six-figure share.
The 1120S K-1 does not reflect my basis, and shows entries in the following boxes: #2 - Net real estate income for year; #4 - Interest income; #9 - Net section 1231 gain; #16 - Items affecting shareholder basis, code D - a figure about 10% greater than the large Sect. 1231 gain, with no explanation; #17 - Other Info., code V* (Section 199A income - same figure as box #2).
It seems the K-1 must be amended in some way to reflect my basis. Is this straight-forward, or should I consult a tax attorney to complete this '18 extension. My tax situation otherwise is uncomplicated.
Thanks for any help, Pete
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Some thoughts and comments:
Thanks Rick. The inheritance was a complex situation after her death 20 years ago, with the shares ultimately divided between me and my two surviving siblings just ten years ago. And yes, I will consult a tax pro!
The K-1 above was a final one. Prior year's K-1's were updated by the corp. accountant in line 16 "Factors affecting holder's basis", code D, by the amount of the yearly distribution, but neither the accountant nor I was aware of the original cost basis for my mother's estate 20 years ago, which I found recently was calculated by the 10X yearly earnings formula, I can't see how that figure would be relevant before the property sale, though.
Pete
Basis in an S corp is relevant in determining; ability to take losses and whether tax distributions are taxable.
So in your case, if the S corp did not generate any losses, then you should be fine. As noted in the original response, the tax rules look to basis before the passive activity loss limitations. Additionally, as long as any distributions did not exceed any current year income, then you should be ok here also.
So now, the basis becomes important in determining your overall gain or loss upon the disposition of your S corp stock.
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