2011 Shareholder'S Instructions For Schedule K-1 (Form 1120s) (Page 3 of 14) in pdf

agree to the carryover rule of

as a trade or business or for the

credits. These rules apply to

Regulations section 1.1367-1(g) and

production of income, and

shareholders who:

•

the name of the S corporation to

Amounts in the activity for which

Are individuals, estates, or trusts,

which the rule applies. Once made,

you are not at risk.

and

•

the election applies to the year for

Have a passive activity loss or

The at-risk rules generally limit the

which it is made and all future tax

credit for the tax year.

amount of loss and other deductions

years for that S corporation, unless

Generally, passive activities

that you can claim to the amount you

the IRS agrees to revoke your

include:

could actually lose (your economic

election.

loss) in the activity. These losses and

1. Trade or business activities in

The basis of each share of stock

deductions include a loss on the

which you did not materially

is increased or decreased (but not

disposition of assets and the section

participate and

below zero) based on its pro rata

179 expense deduction. However, if

2. Activities that meet the

share of the above adjustments. If the

you acquired your stock before 1987,

definition of rental activities under

total decreases in basis attributable to

the at-risk rules do not apply to losses

Temporary Regulations section

a share exceed that share’s basis,

from an activity of holding real

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

the excess reduces (but not below

property placed in service before

section 1.469-1(e)(3).

zero) the remaining bases of all other

1987 by the corporation. The activity

Passive activities do not include:

shares of stock in proportion to the

of holding mineral property does not

remaining basis of each of those

qualify for this exception. The

1. Trade or business activities in

shares.

corporation should identify on a

which you materially participated.

statement attached to Schedule K-1

2. Rental real estate activities in

Basis of loans. The basis of your

any losses that are not subject to the

which you materially participated if

loans to the corporation is generally

at-risk limitations.

you were a real estate professional

the balance the corporation owes

for the tax year. You were a real

you, adjusted for any reductions and

Generally, you are not at risk for

estate professional only if you met

restorations of loan basis (see the

amounts such as the following.

both of the following conditions.

•

instructions for box 16, code E). Any

The basis of your stock in the

a. More than half of the personal

amounts described in (3) and (4),

corporation or the basis of your loans

services you performed in trades or

earlier, not used to offset amounts in

to the corporation if the cash or other

businesses were performed in real

(1), earlier, or reduce your stock

property used to purchase the stock

property trades or businesses in

basis, are used to reduce your loan

or make the loans was from a source

which you materially participated and

basis (to the extent of such basis

(a) covered by nonrecourse

b. You performed more than 750

prior to such reduction).

indebtedness (except for certain

hours of services in real property

qualified nonrecourse financing, as

trades or businesses in which you

When determining your basis

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

materially participated.

in loans to the corporation,

protected against loss by a

remember that:

For purposes of this rule, each

guarantee, stop-loss agreement, or

CAUTION

interest in rental real estate is a

other similar arrangement; or (c) that

separate activity, unless you elect to

•

is covered by indebtedness from a

Distributions do not reduce loan

treat all interests in rental real estate

person who has an interest in the

basis, and

as one activity. For details on making

•

activity or from a person related to a

Loans that a shareholder

this election, see the Instructions for

person (except you) having such an

guarantees or co-signs are not part of

Schedule E (Form 1040).

interest, other than a creditor.

a shareholder’s loan basis.

•

Any cash or property contributed to

If you are married filing jointly,

See section 1367 and its

a corporate activity, or your interest in

either you or your spouse must

regulations for more details.

the corporate activity, that is (a)

separately meet both of the above

covered by nonrecourse

conditions, without taking into

Worksheet instructions. For lines

indebtedness (except for certain

account services performed by the

6 and 7, do not enter more than the

qualified nonrecourse financing, as

other spouse.

aggregate sum of the preceding lines.

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

Any excess of the amounts that

A real property trade or business is

protected against loss by a

would otherwise be entered on lines 6

any real property development,

guarantee, stop-loss agreement, or

and 7 without regard to this limit over

redevelopment, construction,

other similar arrangement; or (c) that

the amounts actually entered on

reconstruction, acquisition,

is covered by indebtedness from a

those lines is a reduction to your

conversion, rental, operation,

person who has an interest in the

basis, if any, in loans you made to the

management, leasing, or brokerage

activity or from a person related to a

corporation (to the extent of such

trade or business. Services you

person (except you) having such an

basis). Any portion of the excess not

performed as an employee are not

interest, other than a creditor.

used to reduce your basis in stock

treated as performed in a real

and loans is not deductible in the

property trade or business unless you

Any loss from a section 465

current year and is carried over to

owned more than 5% of the stock (or

activity not allowed for this tax year

next year and subject to that year’s

more than 5% of the capital or profits

will be treated as a deduction

basis limit. See the preceding

interest) in the employer.

allocable to the activity in the next tax

instructions for more details.

3. The rental of a dwelling unit any

year.

shareholder used for personal

At-Risk Limitations

You should get a separate

purposes during the year for more

statement of income, expenses, etc.,

Generally, you will have to complete

than the greater of 14 days or 10% of

for each activity from the corporation.

Form 6198, At-Risk Limitations, to

the number of days that the residence

figure your allowable loss, if you

was rented at fair rental value.

Passive Activity Limitations

have:

4. Activities of trading personal

•

A loss or other deduction from any

Section 469 provides rules that limit

property for the account of owners of

activity carried on by the corporation

the deduction of certain losses and

interests in the activities.

-3-

Instructions for Schedule K-1 (Form 1120S)

2011 Shareholder'S Instructions For Schedule K-1 (Form 1120s) Page 3

Related Articles

Related forms

Related Categories