K-1 losses

It is my understanding that losses from an S-Corp can only be taken when there is a basis to offset it. In other words, if at beginning of year, the corp stock basis was already a negative, and this year there was a further loss, they have no basis in stock. So, they cannot take that loss on personal return. Is this correct? If so, why is the program transferring the loss I am reporting from a K-1 (on Schedule E) to Schedule 1, Line 5?

578

Level 15

Mar 27, 2022 11:20:19 PM

you are correct. where does the money come from to fund these losses? basis not only includes cash put in for the stock but also loans made directly by the stockholder(s) to the S-Corp. handling loans by stockholders can get very complicated especially if they repay part of the loan.

if you don't have tax basis you must check "some of investment in the corporation is not at-risk" box and complete form 6198.

Level 2

Mar 28, 2022 5:04:13 AM

Thanks!

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K-1 losses