Form 7203 allowed loss not being carried through to Schedule E

[CNmdr]

I have a schedule K1 loss in an S Corporation of -4022.  My basis (after adjustments) in the S corp is only 2598 (according to form 7203).  I am an active (sole) participant in this S corporation and all of my investment is at risk.  I believe that the amount of the loss shown on schedule E for this S corporation should be adjusted downward to -2598, yet Turbo-tax is still populating this entry with the reported loss of -4022.  I am not sure why the result of the schedule 7203 calculations are not being used to update my losses.

In past years, there was not a form 7203, and the instructions simply required that we enter limited loss (instead of the reported loss) in the schedule K1 input.   This year we go through the new worksheet, but I don't understand why the result is not being carried through, and whether we are supposed to make a manual adjustment, but if manual, which item do we adjust.

[Mike9241]

surprise the 7203 is only for IRS informational purposes. it does not limit your loss to basis. to do that you need to link the k-1 to the at-risk form 6198

[CNmdr]

Thank you for the quick response.  So, I have now added a form 6198, which appears indented under the relevant Schedule K1, which I presume means that it is linked to that K1.  I have completed the form 6198 (mostly redundant with form 7203), but the amount of loss that appears on my Schedule K1 and also schedule E is still the original loss from the K1, absent the limitation from form 6198.  Do I need to manually update some amount on the K1 or schedule E to be the number that appears on line 21 of Form 6198.  One would think Turbotax would automatically do this.

[Mike9241]

oops forgot to mention on the k-1 you have to check the box by the 6198 link that says some of your investment is not at risk.

[CNmdr]

Thanks again for your helpful response.  When I checked the box that said my investment was not at risk, the numbers did in fact propagate to the correct forms.  Perhaps I didn't understand what at risk meant, since my entire investment was at risk, although my basis (my investment) was less than the capital in the S corp.

Unfortunately, I am now observing a different problem, in that the loss allowed according to form 6198 is different than the loss reported as allowed on form 7203.  I can see exactly what is happening.  I had a 250 nondeductible expense reported on my K1, and that carried through automatically onto form 6198.  The worksheet for form 6198 did a pro-ration to determine what part of the ordinary loss was allowed, and what part of the "other deduction or loss" (which is really the nondeductible expense) was  allow, and it then determine the sub of the allowed ordinary loss and the allowed "other deduction or loss", which turned out to be precisely my new basis.

But on the form 7203, the numbers did not carry directly by Turbotax, instead, I entered the numbers for my basis (capital contributions) , and I entered the $250 Nondeductible expenses (from line 16 of my K1) into the current year amount on line B of the Stock and Debt Basis Limitations Smart worksheet).  I entered line 1 of my K1 (which technically had already been reduced by the 250).  In this case the allowable total loss calculated was my basis less this $250.

The amount that was used to carry through to my schedule E was the larger loss (i.e. from form 6198).  But, I am not certain if that is correct.  Certainly to be conservative I would likely want to use the smaller loss (the one from form 7203). 

I'm not really sure why these would be different, unless either Turbo tax is doing the calculations differently for the two forms (one correct, and the other incorrect), or perhaps the $250 I entered into the form 7203 worksheet as current year nondeductible expenses was not supposed to be entered there since it had already reduced to full loss on the schedule K1 that I received.

[cbusa]

Is a loss above basis carry forwarded to future years? If so where do you look for this?

[Mike9241]

yes. loss in excess of basis is carried forward to future years. so should you have income or increase your investment that will give you additional basis for taking losses. 

you may be doing something wrong on the 7203

did you check the box for the reg 1.1367 election to defer using nondeductible expenses against basis if so the nondeductible loss is not enterd on part III of the 7203. then line 46 should be blnk (that's where the nondeductible expenses would be entered if the election is not made. 

you may have #10K of basis but if you don't make the elction some of your basis is applied to the nondedcutible expenses reducing the amount allowe as a deduction so allowed on the 6198 will differ from 

allowed on the 7203 and 1040 which is okay becuase the 7203 shows the allocation along with carryover losses due to basis limitation (part III)

[cbusa]

Hi Mike thanks

regarding "yes. loss in excess of basis is carried forward to future years. so should you have income or increase your investment that will give you additional basis for taking losses. " is there a way to check to see if Turbotax has this for carrying forward for 24?

Do I need to manually add form 6198? Trying to think whether I added this manually or turbotax did when I checked the at risk below?

On the K-1 worksheet  under Part II do I need to check "Some investment in corporation not at risk?"

Does any of the above changed if the corporation is real estate business and qualifies with 750+ hours a year. I believe this income is ordinary income? Not sure about losses though?

[cbusa]

Sorry does the Turbotax 23 easy step normally automatically add forms 6198 and 7203 or does one have to manually add these? Do these forms apply if loss from a 100% solely owned real estate business where more than half time is spent in real estate and 750 hours? Perhaps that is why it is not adding?