S Corp suspended loss from prior year

[RichGee]

I have a client who has a suspended loss from a business activity (non-passive) that gets "freed up" thanks to PPP loan forgiveness.

Pro Series is showing that loss as passive but I don't think that's correct. Can anyone shed some light on this?

Thnx.

[dkh]

Can you be more specific about the "business activity" -  K-1 income from SCorp ?   

Is this loss carried forward from prior year return?  Did it show as non-passive then? 

[RichGee]

Thnx dkh

The k-1 is from an S Corp that my client materially participates in (full time ) and earns a salary from.

Due to the pandemic he suffered losses in 2020 & 2021. Only able to have basis due to PPP loan forgiveness in 2021.

2020 loss was carried over to 2021 and was shown as non-passive loss on 2020 return.

Hope this helps.

[TaxGuyBill]

---

@RichGee wrote:

Only able to have basis due to PPP loan forgiveness in 2021.

2020 loss was carried over to 2021 and was shown as non-passive loss on 2020 return..

---

Are you using ProSeries?

ProSeries has not been capable of automatically limiting a loss due to Basis, so you may have entered something wrong on the 2020 return.  You should have ONLY enter the amounts allowable on the K-1 worksheet, and the 2020 program would not show anything about a carryover.  Then you would have needed to manually kept notes for carrying it over to 2021.

So you first may want to look at if 2020 needs to be changed or not.

As for 2021, add a second K-1 for the corporation, but rather than using the corporation name, call it "PYA".  On that "PYA" K-1, enter the amounts that are now allowed due to restored Basis.  And be sure to check "yes" for Box 27 of Schedule E.

[RichGee]

Thnx TaxGuy Bill

Very clever!

BTW, I use Pro Series

It's a shame you need to do a work around for something like this.