Based on the limited facts, I am assuming that you loaned the S corporation money and there is a note tied to the loan that has a stated or variable interest rate.
In addition, I am assuming that you have interest income being reported on your K-1. In that case, you now have what is known as self-charged interest. The passive activity regulations allow a taxpayer to reclassify some or all of this interest income as passive income. There are rules that dictate when you can do this and how much can be reclassified. This forum is unfortunately not set up to provide the necessary guidance to provide much more assistance as it would require too much information. If you are wanting to attempt to handle this your self or want a better understanding, you need to look at regulation 1.469-7.
However, while not having many facts, if you are subject to the NIT I would recommend that you have a tax professional provide assistance in preparing your tax return.
Additionally, even if you reclassify the self-charged interest as noted above, you are still dealing with a passive activity which is subject to the NIT if you exceed the floor. All you are doing here is really offsetting the interest income and the interest expense which you would get to either way.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
