- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Report Inappropriate Content
Business & farm
There are a number of issues here:
- The introduction of form 7203 does not change how the losses flow through the tax return
- form 7203 is only a form to show the IRS what your tax basis is. Nothing more. They just wanted to have some kind of consistent form for showing tax basis, instead of dozens of different methods of tracking tax basis presented by taxpayers.
- Your issue and comments for year 3 are not totally correct. You are correct in that no additional losses are to be reflected on form 8582; and this is because you have no tax basis. Your comment that in past years you just input the loss from box 2 was done incorrectly. You, the taxpayer, needed to understand your tax basis and should not have been inputting this amount......you should have been tracking your tax basis on your own, how ever you wanted to track it, and then known that you had no basis and should not be inputting any loss from box 2. However, see next bullet which would impact the input.
- In year 3, based on your facts, should have used form 6198. This will limit any losses in TT and track them separately.
- There are 3 loss limitations; your tax basis (also your at-risk being an S corp), your passive loss limitation and the excess business loss limitations. All are separate. Nothing has changed in the tax world regarding reducing tax basis by losses even when they are not allowed due to some other reason; ie at-risk or passive activity.
- While I don't have a sufficient understanding of your situation, nor is this forum the place to dive into this type of a transaction / structure, I believe you may have a bad structure.
- You are using an S corporation that invests in an LLC (taxed as a partnership) which then invests in real estate. The LLC is a completely different structure and the tax basis and at-risk rules are also completely different.
- The LLC is able to use nonrecourse debt for tax basis and can use qualified nonrecourse debt for at-risk purposes. However, once those losses pass through to you at the shareholder level, that stops.
- An S corporation does not get those same debt advantages for tax basis and at-risk.
- You should also have a tax basis schedule at the S corporation level of its investment in the LLC. If the S corp doesn't have sufficient basis in the investment, then the losses are suspended at the S corp level.
- I concur that you need to meet with a tax professional and visit your structure and goals for this investment.
*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.
Also keep in mind the date of replies, as tax law changes.
‎October 16, 2022
5:13 PM