On Individual form 7203 based on 1120S K-1, I have a large formal debt 1 and new formal debt based on 2022 & 2023 losses. If '23 loss does not impact net taxable, do you restore any of that in Part II Shareholder Debt Basis? Do you add that to line 26?

[tagteam]

Please check back later. I will page Champs @Rick19744 and @Mike9241.

[Mike9241]

"If '23 loss does not impact net taxable",

It's unclear how you can have a loss and net taxable.

example multiple debts

Debt basis in situations where there is multiple indebtedness requires a shareholder to allocate losses in excess of stock basis proportionately. Assume the following fact pattern: Shareholder Z holds four notes of an S corporation; tax basis at beginning of year (reduced basis due to prior losses). the first note is $1K, the second $2k, third $3K, and fourth note $4K. There are no payoffs of these notes during the year. The company has a $6,000 loss in excess of stock basis. 

note 1 further reduced by 1/10 *6 or $600

note 2 further reduce by 2/10* 6  0r $1,200 an so on

your post is confusing so please provide more details. 

I don't see how losses can ever restore debt basis. 

[deductionsarefun]

The 1120-S has a loss in 2023 of approximately $16,000. That loss amount is allowed on 7203. Once I enter that on 1040-SR, the total income is approximately $-19,000. The loss did not help 1040 taxes. It had no impact. On the 7203 form , Part II, Shareholder Debt Basis was decreased in 2022 for a loss, and now is further reduced by the 2023 allowed loss on line 30. The 2022 loss did offset 2022 income.  The 2023 allowed loss just increased the loss further. Would this loss be treated like capital gains losses of $3000 allowed that continue to carry over if they don't help tax situation? Would the impact of $0 benefit be adjusted as a repayment on the Shareholder Debt Basis as Nontaxable debt repayment on line 26? If so, would that adjustment for 2023 loss be made on 2023 or 2024 7203 form? What lines would any adjustment be made and for how much?  Thank you very much for your assistance.

[deductionsarefun]

This last reply from deduction are fun is the same as virgl.  Sorry for the confusion.  I could not seem to get back to the virgl user name.

[Rick19744]

A couple of comments:

• I agree with @Mike9241 in that this post and facts are confusing.
• Based on your facts, you need to make sure that you are tracking each debt separately as noted by Mike.
• Any allowed losses will be reported based on how they are reflected on the K-1; ordinary, capital, etc.
• Not sure how you are arriving at the conclusion that the losses had zero benefit?  
  • Do you have a net operating loss that needs to be considered?
  • Do you need to look at the options of the net operating losses and make any appropriate election?
• Your debt basis will only be restored when the S corporation generates taxable income
• I'm going to suggest that you meet with a tax professional to make sure that you are handling the K-1 application on your personal tax return correctly.