Shareholder buyout - where to report interest on buyout loan

[montague]

abctax55 - I reviewed a prior post you had commented on and I am requesting further information.

RE:  S-Corp Shareholder buyout  by employees (new shareholders)

Interest on the loan to buyout original shareholder, where is it reported? K-1 as UPE?

[TaxGuyBill]

UPE means Unreimbursed PARTNERSHIP Expenses.  So no, a shareholder in a corporation does not have UPE.

Look at the Instructions for line 28 of Schedule E.

[montague]

TaxGuyBill, I don't disagree with you.  I've been researching this and I've been told by (2) CPAs that the interest is deductible to the new shareholder.  I also found the thread below.  What no one can explain is where does the interest go on the individual's tax return.  Thoughts?

abctax55 Level 15

‎12-04-2020 02:36 PM

IF the stock purchase meets the requirements as discussed here, and in IRS Notice 88-37, the interest does go to Sch E page 2:

In Lacerte, it's entered as an "un-reimbursed" expense, and generates a diagnostic that 'generally' an S-Corp shareholder doesn't get to deduct un-reimbursed expenses anywhere other than Sch A.

Interest on acquisition is handled a bit differently.

[TaxGuyBill]

If you are asking if/where/how it goes on the 1040, my previous response to you told you the answer.

If you are asking how to enter things in Lacerte, then it looks like you may have already found the answer.

[abctax55]

1) create a second K-1

Or

2) Use line 13 input, or the 'separately reported stuff' on the main K-1

[dkh]

On the K1 Select the Quickzoom to enter health insurance premiums paid..... that takes you to a section titled Outside Expenses which has a line for Interest paid for acquisition of SCorp shares

[abctax55]

Ah....  a specific PS answer.   I saw the Lacerte reference instead.

That's a nice feature PS has.

[montague]

@dkh THANK YOU SO MUCH!!

[montague]

@abctax55 Thank you so much, you're always so amazing!

[abctax55]

😇

YVW

[dkh]

@montague  You're welcome. Glad I could help.