The program will try to determine whether 8990 is required based on your entries on the Miscellaneous Information screen, in the Business Interest Expense section. A critical diagnostic will appear if these entries indicate the form is required, but it’s not generated with the return.
To generate Form 8990 because the S corporation is required to file:
- From the left of the screen, select Other Forms and choose Limitation on Business Interest Expense (8990).
- Mark the checkbox labeled S corporation is subject to the section 163(j) limitation.
- If desired, mark the checkbox Automatically complete Form 8990, Part I, and calculate allowed/disallowed interest amounts on return.
- Mark the checkbox for any applicable elections.
- Leave the S corporation is Not Subject to Section 163(j) Limitation subsection blank.
- Complete the applicable entries.
- If you checked the box to automatically complete Part I of the form, all fields with an asterisk can be left blank. The program will calculate these amounts.
The limitation calculated on Form 8990 will automatically be applied to interest amounts that flow to the return if you had the program automatically calculate for you. A worksheet will print detailing the Interest Expense Before and After Section 163(j) Limitation for each activity.
If you chose to apply the limitation manually:
You must go to each activity’s input screen and indicate the allowed amount of business interest expense. For example, to limit the interest expense reported on Form 1120S, line 13:
- From the left of the screen, select Ordinary Income and choose Deductions.
- Enter the amount in Allowed amount, if limited on Form 8990 (override, if program is calculating).
This input is available on other activities such as farm income and expenses, rental real estate, and passthrough K-1s.
If the S-corporation isn’t required to file, but a shareholder may be:
- From the left of the screen, select Other Forms and choose Limitation on Business Interest Expense (8990).
- Leave the Subject to Section 163(j) Limitation subsection blank.
- Scroll down to the S corporation is Not Subject to Section 163(j) Limitation subsection.
- Mark the checkbox labeled Shareholders could be subject to section 163(j) limitation.
- If desired, mark the checkbox Carry amounts from the return to Form 8990 Worksheet.
- Complete the applicable entries.
- If you checked the box to carry amounts from the return to the worksheet, all fields with an asterisk can be left blank. The program will calculate these amounts.
A worksheet version of Form 8990 will generate, but won’t be filed with the return.
Each shareholder’s portion of business interest income, adjusted taxable income, and expense will be reported on a statement for Schedule K-1, box 17.
If necessary, you can override the amount reported to each shareholder on the Schedule K-1 Overrides, under Other Information, using the Not Subject to Section 163(J) Limitations fields.