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Lacerte > 04Tax > Individual > US > Basis Limitation

The Lacerte S Corporation program generates a worksheet called "Shareholder Basis Computation".  In 2004, the Lacerte Individual program was enhanced to include the ability to apply the basis limitations to amounts reported on a Schedule K-1.  Below are instructions on how to enter the information from the S Corporation worksheet into the 1040 K-1 input screens.

The line numbers below refer to the line numbers on the shareholder basis computation worksheet that the S-Corporation program produces.

Line 1: This amount should be entered in "Stock basis at beginning of year" (Screen 20.2, code 162).  This input is required to trigger the basis schedules in the Individual program.  If there is no stock basis at the beginning of the year, enter -1.

Lines 2–8, 13-24: These lines do not need to be input into the basis limitation section of the K-1 input screen.  The basis limitation will automatically pick up the income and losses from the K-1 input screen.

Lines 9: If there is an entry for "Net Gain on dispositions of 179 assets," information from the sale should be attached to the K-1 that the shareholder received.  Use this information to enter the sale as described below in "Tying gain entered in Disposition Screen 17 to K-1."

Line 10: If oil and gas depletion in excess of basis has been input in the K-1 input screen, it will be included in the basis calculations automatically.

Line 11: There are several items that can appear on line 11:
A. "Adjustment to restore debt basis" should not be input.  The program will compute this automatically.
B. Adjustment for deemed dividends will be included automatically, if the dividend has been input in the K-1 input screen.  If it has not, an increase to basis should be input in "Other increases to basis" (Screen 20.2, code 165).

Line 25: If you have an amount on line 25 see "Including Foreign Taxes in the Basis Limitations" below.

Line 26: If the expenses from line 26 have been input in the K-1 input screen, they will be included in the basis calculations automatically.

Line 27: Amounts on line 27 of the Shareholder’s Basis Computation should be entered in the "Basis Carryovers" section of the K-1 input screen.  This input is towards the bottom of the screen.

Line 28: There are several items that can appear on Line 28, "Other decreases":
A. If there is an amount with a description of "Loss in excess of basis," do not enter this amount in the Schedule K-1 input screen.  It will be computed automatically.
B. If there is an entry for "Loss from Section 179 assets", information about the sale should be attached to the Schedule K-1 that the shareholder received.  Use this information to enter the sale as described below in "Tying Gain Entered in Disposition Screen to K-1".
C. Any other Decreases should be input in "Other decreases to basis" (Screen 20.2, code 166).

Line 29: Amounts on line 29 of the Shareholder’s Basis Computation should be entered in "Property distributions" (Screen 20.2, code 164).

Lines 32: Amounts on line 32 should be input in "Debt basis at beginning of year, if different" (Screen 20.2, code 171). NOTE: You must also enter the beginning principal amount of the loan in "Principal amount of debt S-Corporation owes shareholder" (Screen 20.2, code 170).

Line 33: There are several items that can appear on Line 33, "Adjustments to debt basis":
A. If there is an amount with a description of "Loans made to S Corp during tax year by shareholder," enter this amount in "Loans made to S-Corporation during the year" (Screen 20.2, code 191).
B. If there is an entry for "Adj. to restore debt basis from prior year losses/deductions," do not enter this amount in the Schedule K-1 input screen.  The program computes this amount in accordance with Internal Revenue code section 1367(b)(2)(B) which states that any net increase to basis increases debt basis before stock basis. "Net increases" is the amount by which current year income and other increases to basis exceed current and prior year losses, and other decreases to basis.
C. If there is an amount with a description of "Loan repayments," enter this amount in "Loan repayments" (Screen 20.2, code 192).
D. If there is an amount with a description of "Losses/Deductions in excess of stock basis," do not enter this amount in the Schedule K-1 input screen.  It will be computed automatically.
E. Any other Decreases should be input in "Other decreases to basis" (Screen 20.2, code 166).

Gain recognized on repayment of loan: The Individual program does not automate the calculation of the gain recognized on the repayment of a loan with a reduced basis.  This gain must be input in Screen 17, Disposition (Sch. D/4797/etc).  The amount of the gain should also be input in "Adjustments to debt basis" (Screen 20.2, code 172) so that the debt basis is increased by the amount of the gain.

Tying Gain Entered in Disposition Screen to K-1:
To associate a disposition entered in Screen 17, Dispositions, with the basis calculations:

1.  Add an asset in Screen 17, Dispositions, and enter the basic sale information (description, date acquired, date sold, etc).  This step is not necessary if the K-1 transfer utility has already bridged the information for this sale into Screen 17.
2.  Within the input for that asset, go to the section of the screen titled "Related Activity Information - Passive (8582)/At-Risk(6198)".
3.  In "Form Number of Related Activity (Ctrl+T)" (Screen 17, code 90), select "Schedule E (S-Corporation)".
4.  Enter the name or number of the activity in "Activity Name or Number (Ctrl+T)" (Screen 17, code 91).
5.  Enter a 1 or check the box for "Include in At-Risk/Basis calculation" (Screen 17, code 190).

Including Foreign Taxes in the Basis Limitations:
Since there is currently no input in the K-1 input screen for foreign taxes, if there is an amount on line 25 of the basis worksheet, extra input is required to reflect the correct amount of foreign taxes allowed:

1.  Enter the foreign taxes in "Charitable Contributions (cash-50 percent limitation)(12)(A)" (Screen 20.2, code 65).
2.  Process the return and look at the federal basis limitation worksheet.  Take note of the amount in the "Loss allowable by basis limitation" column for charitable contributions.
3.  Go into Screen 35, Foreign tax Credit (1116), and enter the amount from step 2 above as foreign taxes paid or accrued, along with all other applicable information (date paid, name of foreign country, etc).
4.  Go into Screen 25, Itemized Deductions, and enter the amount from step 2 (above) as a negative number in "Cash, 50 Percent Limitation" under the "Current year contributions" section of the screen.  This entry will prevent the extra charitable deductions entered in the Schedule K-1 from showing up on Schedule A.

Distributions in Excess of Basis
If you have distributions in excess of basis, per Internal Revenue Code section 1368(b)(2), if the S-Corporation has no earnings and profits, this excess distribution is a capital gain.  Enter the amount of the excess as a capital gain in Screen 17, Dispositions (Sch. D, 4797, etc).  Also enter this gain in "Other current year increases to basis (Screen 20.2, code 165)".

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