S Corporation Basis Limitations

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Is there a way in Proseries to have the software apply a S Corporation loss limitation due to basis, as computed on Form 7203, to the Schedule E, Page II and ultimately the actual 1040?

I have a situation where my S Corporation shareholder has a ($10,000) loss on their current year K-1 which I enter into the S Corporation K-1 worksheet.  I then go to Form 7203 as required by IRS due to the K-1 loss.  I complete Form 7203.  For simplicity my client has $6,000 of S Corp basis coming into the year and no other S corporation activity that would affect basis during the year other than the ($10,000) loss.

Form 7203 correctly adjusts the current year basis down to $0 and in Part III which is the allowable loss section also correctly computes the $6,000 current year allowable loss from stock basis and a $4,000 carryover amount.

However the entire ($10,000) loss still ends up on Schedule E, page II and on the 1040.  The software is flowing through the entire loss even though form 7203 computes that only $6,000 of the $10,000 is allowable/deductible in the current year.

Also, the shareholder materially participates in this business so it isn't a Form 8582 passive loss situation.  The loss is limited only because of insufficient basis.

[IRonMaN]

Enter the $6,000 loss on the K-1 worksheet in the 1040 module instead of the $10,000.

[Terry53029]

I also do same as Ironman, but I click on supporting statement ( to left of line 1) and note basis limitation just so I have record of reason line 1 is different from actual K1 received

[aaaaaaaaaaaaaaaaaaaaaaaaaaaaaa]

What about the QBI deduction?  Do you also enter the allowed loss from 7203 on the QBI section?  If so then it seems like you manually need to track and modify the QBI loss carryforward the following year.

[Terry53029]

The 199 info on line 17 code VV will show your clients QBI loss, and I believe program will automatically carry over loss on his 1040 

[IRonMaN]

I'll second that.

[aaaaaaaaaaaaaaaaaaaaaaaaaaaaaa]

The above suggestion of changing the loss entered on the K-1 worksheet to the allowable loss computed on Form 7203 (basis limitation) does work.  It seems like the software should pick up this limit, which it doesn't, instead of going back into the K-1 worksheet and entering a different loss amount than what the K-1 actually shows.  I do like the suggestion of using a footnote as a reminder in proseries as to why a different loss amount is entered on the K-1 worksheet.

The QBI loss still seems to be an issue.  In my example the QBI loss is equal to the ordinary business loss in box 1 - say ($10,000).  I manually adjust line 1 in the K-1 worksheet to only show the $6,000 allowable loss as computed on Form 7203 and that limited loss then ends up on Schedule E, page II.  The QBI loss is also ($10,000).  If i enter the full ($10,000) QBI loss in the QBI section of the worksheet (line 17, Code V) then proseries shows the entire ($10,000) on the QBI form 8995.  This is not correct since only ($6,000) of the loss is being allowed in the current year.  This should mean ($6,000) of the loss shows up as a QBI loss on form 8995.  The remaining ($4,000) should be both an ordinary unallowed loss carryover and a QBI loss carryover.

To get this to work correct i will need to adjust the QBI loss entry amount to the allowable amount for the current year as computed on Form 7203, but then next year i will need to do a manually entry to the QBI carryforward.  It seems like the software should handle this in a better way.

[TaxGuyBill]

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@aaaaaaaaaaaaaaaaaaaaaaaaaaaaaa wrote:

It seems like the software should handle this in a better way.

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Yep.  It is ridiculous that the software doesn't handle Basis limits.