I am a partner in an S-Corp that received a PPP loan that was later forgiven. I'm transferring the information received (from our company accountant) on my personal K-1 and the relates 1120 into my TurboTax return. The company had a loss in 2021 and I see my portions of the loss and the PPP forgiveness (tax exempt) income reported on those forms. When I transfer the info into TT I see an unexpected decrease in my tax liability, seemingly due to how TT is treating that loss as allowable w/ relation to my stock basis. Specifically:
- My share of the company loss, reported on the K-1 was about -$146K
- My share of the forgiven PPP loans was $152K, reported on the K-1 as 'tax exempt income' (box 16, code B)
- When I punched the $146K loss number, along with the others reported on the K-1, into TurboTax, my tax due went from about $2K to a tax refund of about $34K--as if that $146K loss was directly applied to my net income.
- From what I understand (?) an allowable loss can't exceed by stock basis, which (as reported on Form 7203) was only about $8K
- As filled out on Form 7203, my allowable loss amount is still reported as $146K
- This seems to be because, since the instructions for ‘tax exempt income” on Form 7203 say for “Line 3k. Enter the sum of the amounts from Schedule K-1 (Form 1120-S), box 16, codes A and B.” , this includes $152,286 of income for PPP loan forgiveness (code B on the K-1)
- So, it seems that this $152K PPP loan forgiveness amount is added to my stock basis, which then exceeds the loss, allowing me to apply the full $146K loss amount to my income, greatly decreasing it--which then results in overpaid taxes and refund due.
Does that sound right? This seems to be what's happening, but also too good to be true--it seems very unlikely that Uncle Sam would forgive that PPP loan and then also allow one to use it to further reduce the tax liability. What am I missing or doing incorrectly?
Thank you so much in advance for any advice or insights!
