S corp income reclass'd as Cap Gain - K1 distributions should reduce, correct?

[KL369]

Hi, I realized that some income in my S corp could classify as LT Cap Gain (its sect 1245 property). I'm hoping that will allow me to pull forward last years large cap loss to offset ord income this year. So the S corp K1 should adjust the $23K FROM distributions to box 8a (LT cap gain), correct? If so, who generates the Sch D - my 1040 or S corp's 1120S? Right now my K1 shows the amount both in box 16D as well as 8a.  

Thanks so much!

[LudwigVan_fan]

For me, I would need some clarification. 

1.  You state you had capital loss carryforward....that would be on 1040

2.  Your K-1 shows $23K in distributions (Box 16D)

3.  You have some sort of transaction re Section 1245 property

4.  You think a reclassification should occur moving $23K in distributions to LTCG?

5.  The K-1 shows LTCG in box 8a all ready shows $23K

6.  Box 16D shows $23K in distributions

Re 1245 property....part of any gain would be ordinary income based on depreciation recapture.  Gain in excess of the depreciation recapture would Section 1231 gain (LTCG).

I don't know what you mean by moving distribution to LTCG?   Two entirely different things.  A distribution means you received either cash or property worth $23K.  If that in fact is the case, that can not be redone.  The only way this would change is if the amount of distribution exceeds your basis in the S stock...and that excess would be treated as LTCG...but it wouldn't change the amount of the distribution.

As far as the LTCG, when you entered the K-1 information into TT, it should have applied that against any capital loss carryforward on your 1040.  The Sch D is on your F1040.

If I have the scenario correct, there is no reclassifying to do or can be done. You can not move a distribution to LTCG.  

If the computation of the Box 8a gain is incorrect; any change  would be done at the 1120S level and would affect all shareholders.

[KL369]

Hi @LudwigVan_fan  Thank you for your thorough and well thought out reply. I see why I had contagious confusion. The distributions don't play in. Its the S corp net income (the amount is very close to distributions) that is the result of the asset sale (held for 15 mos, cost:$1 + $1250 cost of sale, netting $23K). I think I should be able to get it off of 1040 Ln 8 and onto Sch D Ln 11A where it will be absorbed in loss carryover. Does that make sense? But now I'm not sure how I do that. By the way, its a single member S corp and I'm delinquent on completing the 1120S and therefore the K1 (which is why I mentioned that I can still change it if needed). 

[LudwigVan_fan]

To enter into TT, go to Personal tab

Personal Incom

Business Investment and Estate/Trust Income

Select update Sch K-1

S Corporations

Then enter in all the boxes from the K-1 into TT.   TT should put everything from the K-1 into the right categories.

Good luck....you may get a penalty if you didn't request an extension on the 1120S & the 1040

[alexpor]

If an S corporation has income earnings for the year, no more than 25 percent of its gross receipts for the year may be generated by passive income. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. I'm way back to do research as I'm confused between the business entity search process and the S-Corp process.  Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income.

[tagteam]

"Exempt" is the wrong term. The income flows through to the shareholders.