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Elections

stock is generally figured at the end of

(3) that exceeds the basis of your

the corporation's tax year. Any losses

stock and debt owed to you by the

Generally, the corporation decides

and deductions not allowed this year

corporation is treated as an amount

how to figure taxable income from its

because of the basis limit can be

described under (3) for the following

operations. However, certain

carried forward indefinitely and

tax year.

elections are made by you separately

deducted in a later year subject to the

on your income tax return and not by

To make the election, attach a

basis limit for that year.

the corporation. These elections are

statement to your timely filed original

made under the following code

or amended return that states you

You are responsible for keeping the

sections.

agree to the carryover rule of

information needed to figure the basis

Section 59(e) (deduction of certain

Regulations section 1.1367-1(g) and

of your stock in the corporation.

qualified expenditures ratably over the

the name of the S corporation to

Schedule K-1 provides information to

period of time specified in that

which the rule applies. Once made,

help you figure your stock basis at the

section). For details, see the

the election applies to the year for

end of each corporate tax year. The

instructions for code J in box 12.

which it is made and all future tax

basis of your stock (generally, its cost)

Section 263A(d) (preproductive

years for that S corporation, unless

is adjusted annually as follows and,

expenses). See the instructions for

the IRS agrees to revoke your

except as noted, in the order listed. In

code M in box 12.

election.

addition, basis may be adjusted under

Section 617 (deduction and

other provisions of the Internal

The basis of each share of stock is

recapture of certain mining

Revenue Code. You should generally

increased or decreased (but not

exploration expenditures).

use the

Worksheet for Figuring a

below zero) based on its pro rata

Section 901 (foreign tax credit).

Shareholder’s Stock and Debt Basis

share of the above adjustments. If the

to figure your aggregate stock and

Additional Information

total decreases in basis attributable to

debt basis.

a share exceed that share's basis, the

For more information on the treatment

1. Basis is increased by (a) all

excess reduces (but not below zero)

of S corporation income, deductions,

income (including tax-exempt income)

the remaining bases of all other

credits, and other items, see Pub.

reported on Schedule K-1 and (b) the

shares of stock in proportion to the

535, Business Expenses; Pub. 550,

excess of the deduction for depletion

remaining basis of each of those

Investment Income and Expenses;

(other than oil and gas depletion) over

shares.

and Pub. 925, Passive Activity and

the basis of the property subject to

At-Risk Rules.

Basis of loans. The basis of your

depletion.

loans to the corporation is generally

To get forms and publications, see

You must report on your return

the balance the corporation owes you,

the instructions for your tax return or

(if you are required to file one)

adjusted for any reductions and

visit the IRS website at IRS.gov.

any amount required to be

restorations of loan basis (see the

CAUTION

included in gross income for it to

instructions for box 16, code E). Any

Limitations on Losses,

increase your basis.

amounts described in (3) and (4),

Deductions, and Credits

earlier, not used to offset amounts in

2. Basis is decreased (but not

There are potential limitations on

(1), earlier, or reduce your stock

below zero) by (a) property

corporate losses that you can deduct

basis, are used to reduce your loan

distributions (including cash) made by

on your return. These limitations and

basis (to the extent of such basis prior

the corporation reported on

the order in which you must apply

to such reduction).

Schedule K-1, box 16, code D, minus

them are as follows: the basis

When determining your basis

(b) the amount of such distributions in

limitations, the at-risk limitations, and

in loans to the corporation,

excess of the basis in your stock.

the passive activity limitations. These

remember that:

limitations are discussed below.

3. Basis is decreased (but not

CAUTION

Distributions don't reduce loan

below zero) by (a) nondeductible

Other limitations may apply to

expenses and (b) the depletion

basis, and

specific deductions (for example, the

Loans that a shareholder

deduction for any oil and gas property

section 179 expense deduction).

held by the corporation, but only to the

guarantees or co-signs aren't part of a

Specific limitations apply before

shareholder's loan basis.

extent your share of the property's

at-risk and passive loss limitations.

adjusted basis exceeds that

Shareholders only obtain basis from

Basis Limitations

acting as a guarantee or in a similar

deduction.

capacity to the extent the shareholder

Generally, the deduction for your

4. Basis is decreased (but not

makes a payment pursuant to the

share of aggregate losses and

below zero) by all losses and

guarantee.

deductions reported on Schedule K-1

deductions reported on Schedule K-1.

is limited to the basis of your stock

You may elect to decrease your

See Regulations section

and loans from you to the corporation.

basis under (4) prior to decreasing

1.1366-2(a) and section 1367 and its

For details and exceptions, see

your basis under (3). If you make this

regulations for more details.

section 1366(d). The basis of your

election, any amount described under

-2-

Instructions for Schedule K-1 (Form 1120S) (2017)

Instructions For Schedule K-1 (Form 1120s) - Shareholder'S Share Of Income, Deductions, Credits, Etc. - 2017 Page 2

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