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Posted by Katie on January 21, 2008, 8:43 pm
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> >> If sharedholder basis in an S Corporation goes to zero, and the S
> >> Corporation passes further losses to the shareholder on Schedule K, what
> >> is
> >> the net impact of this? I understand that the shareholder will not be
> >> able
> >> to take the losses in the S Corporation - when basis is exchausted -
> >> against
> >> gains from other unrelated income.
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> >> Do the losses in the S Corporation get carried forward so that the
> >> shareholder can take those losses against future gains from the same S
> >> Corporation when it becomes profitable again?
>
> >> --
>
> > Yes, the losses are suspended and may be deducted when basis is
> > restored by the flowthrough of net income to the stockholder or by
> > additional capital contributions or loans to the corporation by the
> > stockholder.
>
> In terms of the tax forms for the shareholder, is the carryforward loss for
> which there is no basis separated out from carryforward losses that do have
> basis? In other words, how should you compartmentalize such losses to
> separate them from losses in companies where you do have basis?
>
> --
> Will
>
This is not a net operating loss carryforward; it's in a different
category. There is a worksheet in the Schedule K-1 instructions to
calculate your basis in the stock. The current year loss cannot be
deducted to the extent it exceeds your basis in the stock plus your
basis in loans you have made to the corporation. If you wish you can
attach a statement to the return showing your basis and the amount of
loss that is suspended because it is in excess of basis. Or you can
just keep your own carryforward schedules to track the losses and
their later utilization.
Basis limitations come first, then at-risk and passive loss
limitations. It's all laid out in the form instructions.
Katie in San Diego
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