Adjustible Taxable income for 8990

[sam992116]

Hello @Mike9241 Thank you for answering my other question. Would appreciate your input here?

I have almost filled up form 8990 and I just need few clarification on some line numbers on 8990 as from which line items of K1 are they?

Q: Box 6 of Form 8990 (Tentative taxable income) is Line 1 - Line 4c of K1 of entity which has produced this  Excess Business Interest Expense?

Q: Section 3- Business Interest Income -Box 23.  Which Line number of K1 goes here? Line 5 of K1 entity which has produced this 13K expense?

I had sold ET last year so this is Final K1.

I have completed Sch A. and it is lets say showing 43 (i) Current Year excess business interest expense carry forward as lets say $1000

but when complete Section 4, Line 30 (business interest expense deduction allowed) Vs Line 31 Disallowed business interest expense /carry forward. It splits this $1000 lets say as Line 30 = 100 and Line 31  =900

Q: Since I sold ET  last year which number ($1000 or Line 31 number) I will be using to adjust Column 5 (cumulative adjustments to basis) in Sales schedule?

Does this Excess business interest expense deduction increase or decrease column 5 number? Lets say my current adj. to basis number is (-11000) and I have this 1000 excess business interest expense deduction. so Now my adjustment to basis will be -11000 + 1000 = -10000?

[Mike9241]

did you refer to the instructions for 8990. I can't see the k-1 so I might provide the wrong info 

Line 6. Tentative taxable income. Enter
tentative taxable income computed as
though all of the business interest expense
is otherwise allowable business interest
expense. In figuring tentative taxable
income, consider all other applicable
limitations such as sections 163(f), 267,
basis (sections 704 and 1366), at-risk
(section 465) and passive activity loss
(section 469), and excess business loss
(section 461(l)) limitations prior to inputting
the tentative taxable income amount.
The tentative taxable income of a
partnership or S corporation shall include
both separately and non-separately stated
items. For a partnership, this will generally
be the amount on Form 1065, Analysis of
Net Income (Loss), line 1, Net income
(loss), less guaranteed payments,
Schedule K, line 4c. If adjustments to a
partnership's income or deductions
resulting from section 743(b) basis
adjustments are taken into account in
calculating a partnership's net income
(loss), remove the effects of those
adjustments by adding or subtracting the
income, gain, loss, or deduction resulting
from the section 743(b) basis adjustments.
For an S corporation, this will generally be
the amount on Form 1120-S, Schedule K,
line 18, Income/loss reconciliation.
To compute a partnership's and
partner's ATI, the partnership (not the
partner) takes into account items resulting
from adjustments to property under
section 734(b). See Regulations section
1.163(j)-6(d)(2). However, to compute ATI
or items resulting from adjustments to
property under section 743(b), the partner
(not the partnership) takes into account
such items.
These adjustments are entered on
line 13 (or line 20) of Form 8990

********************************************

Line 23. Current year business interest
income. Enter the amount of business
interest income directly paid to or accrued
by the taxpayer. This does not include
interest income from excepted trades or
businesses.

this info would have to come from the partnership if it has any. there is no specific code for this in box 20

from what I've been able to find on the sales schedule the basis has been reduced by 100% of the interest expense including any EBIE so that the portion you can deduct is added back to basis. 

[sam992116]

Thanks @Mike9241 for detailed answer, really appreciate it.

Line 23 of Form 8990.   Does this Business Interest Income comes from any of 20 Boxes? I don't see any Box in 20s labelled as Interest Income or Business Interest Income.

What is Box 5 of k1? It is Labelled as Interest Income. Does any amount is Box 5 of K1 will go to Line 23 of 8990 (assuming there is none in 20s boxes of K1)?

Regarding added back Excess business interest income

Lets say My original basis = 20000

Cumulative Adj to basis = -15000

Gain Subject to recapture as ordinary income = 12000

Excess Business Interest Expense = 1000

New Basis will be 20000 - 15000 + 12000 +1000 = 18000  Is my assumption correct?

Thanks again

[Mike9241]

(6)Business interest income

For purposes of this subsection, the term “business interest income” means the amount of interest includible in the gross income of the taxpayer for the taxable year which is properly allocable to a trade or business. Such term shall not include investment income (within the meaning of subsection (d)).

so line 5 less amount on line  20a (not less than zero) 

[sam992116]

thanks @Mike9241 for your help and showing this examples and details.

This is complete paragraph from form 8990 IRS instructions. It seems like they are making a distinction of business interest income and interest income.  Box 5 of K1 is listed as Interest income.

Either way amount is zero I think 

Box 5 = 50

20a  =  500

Box 5 - Box 20a  = -450 or 0

There is no specific Business interest income box in 20s.

Is my assumption correct?

Business interest income. Business
interest income means the amount of
interest income includible in the taxpayer’s
gross income for the tax year, which is
properly allocable to a trade or business.
Business interest income does not include
investment income.
See C corporation business interest
expense and income, later.
Interest income that is allocable to an
excepted trade or business is not treated
as business interest income.

[sam992116 · Accepted solution]

Flow of information from From 8990

Hello @Mike9241 thanks for your help.

Let say my current cost basis of K1 partnership is $10000

Now I got this Excess Business Interest Expense  $1000

Change is Cost basis due to = Purchase price - Cumulative adj to basis + gain subject to recapture for sales data of k1  + Excess Business  Interest expense  = new cost basis

  Is my assumption correct?

If I mail my tax return along with form 8990, how would IRS know where this $1000 or Excess business interest expense go?

All other info has pre defined route,  first to forms then to  certain schedules then eventually to 1040.

[Mike9241 · Accepted solution]

yes as presented basis is $18K

not every k-1 has business interest income so in those cases 20AF is blank

the type of sale is probably an E - long-term basis not reported to the IRS - so it has no way to determine if the number is right or wrong.  This is true for every taxpayer that sells a security where the tax basis is not reported to the IRS. I have had them in multiple years and have never gotten an IRS inquiry.  You shouldn't either. at least not for this.