is your basis in the S-corp negative? the loss at the partnership level which is allowed due to recourse debt would be deductible if it were held directly by an individual. but you also have basis at the S-corp level to deduct the loss personally. The recourse debt at the partnership level does not pass down to a S-corp shareholder. This is why holding a real estate investment in a S-Corp whether directly or indirectly is usually a bad idea.
as to how to present negative investment. I've seen it done two ways. one as a negative investment and the second as an other liability. some programs will have issues if schedule L lines 15 and 27 are negative which would force you to use other liabilities.
there is no requirement to use tax basis on the balance sheet. so you could just use 0 for investments. but then there would have to be an entry in M-1 to balance the difference.
if your S-corp was always a S-Corp and always reported on the tax-basis your basis at the end of the year would generally be schedule L lines 19+22+23+24 and less line 26 (as a positive number).
