S corp PPP Basis

[Avs19]

Hi all,

I have an issue adjusting the allowable loss on a 2021 1040.

My client incurred a 120K loss on the 2021 1120S. Stock basis carryover from 2020 is 40K. He had 105K in PPP loans forgiven in 2021 which increased basis and took 100K in distributions which decreased basis. My understanding is that he's only allowed to take 45K in losses on the 1040 but when I bring over the K1 and check the some investment not at-risk box, it's allowing the full 105K PPP (other tax exempt income) as a deduction and carrying over the remaining balance. Any ideas as to how to properly adjust this?

Thanks

[sjrcpa]

You need to manually enter only the allowable loss. Keep track of the carryover on your own schedule. ProSeries does not apply basis limitations.

[Avs19]

I guess that's where I'm confused. Which form would I manually enter that? Do I have to override a line?

[TaxGuyBill]

---

@sjrcpa wrote:

You need to manually enter only the allowable loss. Keep track of the carryover on your own schedule. ProSeries does not apply basis limitations.

---

I love that you know how ProSeries works.  😀

[TaxGuyBill · Accepted solution]

---

@Avs19 wrote:

I guess that's where I'm confused. Which form would I manually enter that? Do I have to override a line?

---

When entering the K-1, only enter the allowable amount.  So if Box 1 shows $120,000 loss, but only $45,000 is allowed due to Basis limitations, just enter $45,000.

You will need to manually keep track of the unallowed loss, and manually enter it when it becomes allowable.

You should not fill out Form 6198 for At-Risk limits.

[Avs19]

That's what I'll do. 

Just curious, in what situation would you do anything with form 6198?

[TaxGuyBill]

---

@Avs19 wrote:

Just curious, in what situation would you do anything with form 6198?

---

That is used when there is enough 'regular' Basis to allow the loss, but you don't have enough "At-Risk" basis (such as due to Nonrecourse loans). 

https://www.irs.gov/publications/p925#en_US_2022_publink1000104699

[Avs19]

Got it. Thanks

Last question if you don't mind. In regards to my first question. I'm amending the 2021 tax return. The client deducted the 45K (which he had basis for) on the original return. The bookkeeper just discovered 75K that should not have been treated as income and changed the net to a negative 120K. I plan on amending the 1120S but if he can't deduct anything over 45K, because of the basis limitation, should we amend the 2021 1040?

[sjrcpa]

If nothing would actually change on the 2021 1040 I would not amend it.

@TaxGuyBill I hang around here too much.

[Avs19]

Great, thanks!