Shareholder'S Instructions For Schedule K-1 (Form 1120s)

•

years for that S corporation, unless

The at-risk rules generally limit the

Are individuals, estates, or trusts,

the IRS agrees to revoke your

amount of loss and other deductions

and

•

election.

that you can claim to the amount you

Have a passive activity loss or

could actually lose (your economic

credit for the tax year.

The basis of each share of stock is

loss) in the activity. These losses and

increased or decreased (but not

Generally, passive activities

deductions include a loss on the

below zero) based on its pro rata

include:

disposition of assets and the section

share of the above adjustments. If the

179 expense deduction. However, if

1. Trade or business activities in

total decreases in basis attributable to

you acquired your stock before 1987,

which you did not materially

a share exceed that share’s basis,

the at-risk rules do not apply to losses

participate and

the excess reduces (but not below

from an activity of holding real

2. Activities that meet the

zero) the remaining bases of all other

property placed in service before

definition of rental activities under

shares of stock in proportion to the

1987 by the corporation. The activity

Temporary Regulations section

remaining basis of each of those

of holding mineral property does not

1.469-1T(e)(3) and Regulations

shares.

qualify for this exception. The

section 1.469-1(e)(3).

Basis of loans. The basis of your

corporation should identify on an

loans to the corporation is generally

attachment to Schedule K-1 the

Passive activities do not include:

the balance the corporation owes

amount of any losses that are not

1. Trade or business activities in

you, adjusted for any reductions and

subject to the at-risk limitations.

which you materially participated.

restorations of loan basis (see the

Generally, you are not at risk for

2. Rental real estate activities in

instructions for box 16, code E). Any

amounts such as the following.

which you materially participated if

amounts described in (3) and (4) on

•

The basis of your stock in the

you were a real estate professional

page 2 not used to offset amounts in

corporation or the basis of your loans

for the tax year. You were a real

(1) on page 2, or reduce your stock

to the corporation if the cash or other

estate professional only if you met

basis, are used to reduce your loan

property used to purchase the stock

both of the following conditions.

basis (to the extent of such basis

or make the loans was from a source

prior to such reduction).

a. More than half of the personal

(a) covered by nonrecourse

services you performed in trades or

indebtedness (except for certain

When determining your basis

businesses were performed in real

qualified nonrecourse financing, as

in loans to the corporation,

property trades or businesses in

defined in section 465(b)(6)); (b)

remember that:

CAUTION

which you materially participated and

protected against loss by a

•

Distributions do not reduce loan

b. You performed more than 750

guarantee, stop-loss agreement, or

basis, and

hours of services in real property

other similar arrangement; or (c) that

•

Loans that a shareholder

trades or businesses in which you

is covered by indebtedness from a

guarantees or co-signs are not part of

materially participated.

person who has an interest in the

a shareholder’s loan basis.

activity or from a person related to a

For purposes of this rule, each

person (except you) having such an

interest in rental real estate is a

See section 1367 and its

interest, other than a creditor.

separate activity, unless you elect to

regulations for more details.

•

Any cash or property contributed to

treat all interests in rental real estate

Worksheet instructions. For lines 6

as one activity. For details on making

a corporate activity, or your interest in

and 7, do not enter more than the

the corporate activity, that is (a)

this election, see the Instructions for

aggregate sum of the preceding lines.

covered by nonrecourse

Schedule E (Form 1040).

Any excess of the amounts that

indebtedness (except for certain

If you are married filing jointly,

would otherwise be entered on lines 6

qualified nonrecourse financing, as

either you or your spouse must

and 7 without regard to this limit over

defined in section 465(b)(6)); (b)

separately meet both of the above

the amounts actually entered on

protected against loss by a

conditions, without taking into

those lines is a reduction to your

guarantee, stop-loss agreement, or

account services performed by the

basis, if any, in loans you made to the

other similar arrangement; or (c) that

other spouse.

corporation (to the extent of such

is covered by indebtedness from a

A real property trade or business is

basis). Any portion of the excess not

person who has an interest in such

any real property development,

used to reduce your basis in stock

activity or from a person related to a

redevelopment, construction,

and loans is not deductible in the

person (except you) having such an

reconstruction, acquisition,

current year and is carried over to

interest, other than a creditor.

conversion, rental, operation,

next year and subject to that year’s

Any loss from a section 465

management, leasing, or brokerage

basis limit. See the preceding

activity not allowed for this tax year

trade or business. Services you

instructions for more details.

will be treated as a deduction

performed as an employee are not

At-Risk Limitations

allocable to the activity in the next tax

treated as performed in a real

year.

property trade or business unless you

Generally, you will have to complete

owned more than 5% of the stock (or

Form 6198, At-Risk Limitations, to

You should get a separate

more than 5% of the capital or profits

figure your allowable loss, if you

statement of income, expenses, etc.,

interest) in the employer.

have:

for each activity from the corporation.

•

A loss or other deduction from any

3. The rental of a dwelling unit any

Passive Activity Limitations

activity carried on by the corporation

shareholder used for personal

as a trade or business or for the

Section 469 provides rules that limit

purposes during the year for more

production of income, and

the deduction of certain losses and

than the greater of 14 days or 10% of

•

Amounts in the activity for which

credits. These rules apply to

the number of days that the residence

was rented at fair rental value.

you are not at risk.

shareholders who:

-3-

Instructions for Schedule K-1 (Form 1120S)

Shareholder'S Instructions For Schedule K-1 (Form 1120s) - 2005 Page 3

Related Articles

Related forms

Related Categories