Question

How to report final K-1, adjust cost basis and capital gains

Forum|Forum|4 years ago
April 3, 2022
1 reply
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Trying to figure out how to report a final S-Corp K-1.

S-Corp only asset was land which was sold. There were no other income/expense items and 1120S return shows zero income, though I think the difference between the land basis and sale price should be recorded on P & L as income?

Shares were obtained over time by 1) purchasing from 2 other shareholders and by 2) inheritance.

Basis on purchased shares was $37,500. Question on inherited shares: If I understand correctly, the basis on the inherited shares does not step up because it's land and the inherited shares retain their original basis. Is this correct?

Next issue: Final K-1 has Box 8a $102K net LT capital gains and Box 16D $100K. These are the only boxes used.

After inputting all information on K-1 and Form 7203 the entire 102K LT capital gains transfers to Schedule D line 12 without reducing for the $37,500 purchase basis. Shouldn't the capital gain be the 102K from K-1 less the basis? Clearly I'm missing something but am stumped. Is there somewhere else the basis should be input?

Thank-you

R

RobertB4444

First, the land does receive a step up in basis as long as it was inherited. It's basis is the value at the date of death of the decedent.

Second, the basis should have been entered on the S-Corp return. The K-1 should just reflect the taxable share of the proceeds. If the transaction was entered incorrectly on the S-Corp return then the amount of capital gains would be incorrect on the K-1. But there isn't a basis calculation for entering the amounts from the K-1 onto your personal tax return.

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E

egmsamAuthor

Thank-you, that helps a bit but I still need more clarification.

I understand the land doesn't step up so setting that aside.

Continuing with the other questions, based on my research, it appears that part of the problem is the liquidation distribution was recorded on K-1 line 16D which should have been on a 1099-DIV line 9 and that this amount is not taxed. Is this a correct understanding?

That leaves the amount on K-1 8a currently $102K which appears to be my portion of the grossed up entity's basis .

Where I am struggling is how do I reduce this for my basis of $37K for shares I purchased from others? Should this have been adjusted for on the K-1 or is there an entry I need to make somewhere to reduce my taxable amount?

I need to get back to the CPA that prepared the K-1 to correct it but need to be able to articulate the issues well.

Thank-you