Shareholder's Instructions for Schedule K-1 (Form 1120-S) (2020)

Shareholder's Share of Income, Deductions, Credits, etc. (For Shareholder's Use Only)

Section references are to the Internal Revenue Code unless otherwise noted.

2020


Shareholder's Instructions for Schedule K-1
(Form 1120-S) - Introductory Material

Future Developments

For the latest information about developments related to Schedule K-1 (Form 1120-S) and its instructions, such as legislation enacted after they were published, go to IRS.gov/Form1120S.

What’s New

List of codes.

Most loss, deduction, and credit items reported on the Schedule K-1 may require adjustment based on basis limitations, at-risk limitations, and passive activity limitations before being reported on a shareholder's tax return. It is no longer possible to provide useful reporting information to taxpayers on one page. The list of codes and descriptions have been moved from the second page of Schedule K-1 (Form 1120-S) to these instructions. See the List of Codes, later.

Excess business loss.

The excess business loss limitation rules were repealed for the 2020 tax year by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which also retroactively repealed the rules for the 2018 and 2019 tax years.

New items added to Part II of Schedule K-1.

Item G is added for the shareholder's number of shares for the beginning and end of the tax year. Item H is added for loans from the shareholder for the beginning and end of the tax year.

Decedent's Schedule K-1.

An executor is responsible to notify the S corporation of the name and tax identification number of the decedent's estate when the S corporation stock is part of a decedent's estate. See Decedent's Schedule K-1, later.

Section 951A reporting.

Notice 2020-69 provides an election to be treated as an entity for purposes of section 951A. See Statements Required of Shareholders of Certain S Corporations Electing To Be Treated as an Entity Under Notice 2020-69, later.

General Instructions

Purpose of Schedule K-1

The corporation uses Schedule K-1 to report your share of the corporation's income, deductions, credits, and other items. Keep it for your records. Don't file it with your tax return unless backup withholding is reported in box 13 using code O. (See the instructions for Code O. Backup withholding, later.) The corporation files a copy of Schedule K-1 with the IRS.

For your protection, Schedule K-1 may show only the last four digits of your identifying number (social security number (SSN), employer identification number (EIN), or individual taxpayer identification number (ITIN)). However, the corporation has reported your complete identifying number to the IRS.

You may be liable for tax on your share of the corporation's income, whether or not distributed. Include your share on your tax return if a return is required. Use these instructions to help you report the items shown on Schedule K-1 on your tax return.

Your share of S corporation income isn't self-employment income and it isn't subject to self-employment tax.

.This is an Image: caution.gifThe amount of loss and deduction you may claim on your tax return may be less than the amount reported on Schedule K-1. It is the shareholder's responsibility to consider and apply any applicable limitations. See Limitations on Losses, Deductions, and Credits, later, for more information..

Schedule K-1 doesn't show actual dividend distributions the corporation made to you. The corporation must report such amounts totaling $10 or more for the calendar year on Form 1099-DIV, Dividends and Distributions.

Inconsistent Treatment of Items

Generally, you must report corporate items shown on your Schedule K-1 (and any attached statements) the same way that the corporation treated the items on its return.

If the treatment on your original or amended return is inconsistent with the corporation's treatment, or if the corporation hasn't filed a return, file Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), with your original or amended return to identify and explain any inconsistency (or to note that a corporate return hasn't been filed).

If you are required to file Form 8082 but don't do so, you may be subject to the accuracy-related penalty. This penalty is in addition to any tax that results from making your amount or treatment of the item consistent with that shown on the corporation's return. Any deficiency that results from making the amounts consistent may be assessed immediately.

Errors

If you believe the corporation has made an error on your Schedule K-1, notify the corporation and ask for a corrected Schedule K-1. Don't change any items on your copy of Schedule K-1. Be sure that the corporation sends a copy of the corrected Schedule K-1 to the IRS. If you are unable to reach an agreement with the corporation regarding the inconsistency, file Form 8082.

Decedent's Schedule K-1

If you are the executor of an estate and you have received a decedent's Schedule K‐1, then you have the responsibility to notify the S corporation of the name and tax identification number (TIN) of the decedent’s estate if the S corporation stock is part of a decedent’s estate. This is information that the S corporation must have to properly determine its eligibility to maintain status as a subchapter S corporation. If a decedent died in a prior year and the S corporation continues to send the decedent a Schedule K‐1 after being notified of the decedent’s death, then you should request that the S corporation send a corrected Schedule K‐1. If you receive an interest in an S corporation by reason of a former shareholder’s death, you must provide the S corporation with your name and TIN. For treatment of S corporation income upon the death of a shareholder, see Pub. 559, Survivors, Executors, and Administrators.

Sale of S Corporation Stock

Gain or loss from the disposition of your S corporation stock may be net investment income under section 1411 and could be subject to the net investment income tax. See Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions for information about how to figure and report the tax.

International Boycotts

Every corporation that had operations in, or related to, a boycotting country, company, or a national of a boycotting country must file Form 5713, International Boycott Report.

If the corporation cooperated with an international boycott, it must give you a copy of its Form 5713. You must file your own Form 5713 to report the corporation's activities and any other boycott operations that you may have. You may lose certain tax benefits if the corporation participated in, or cooperated with, an international boycott. See Form 5713 and its instructions for details.

Elections

Generally, the corporation decides how to figure taxable income from its operations. However, certain elections are made by you separately on your income tax return and not by the corporation. These elections are made under the following code sections.

  • Section 59(e) (deduction of certain qualified expenditures ratably over the period of time specified in that section). For details, see the instructions for code J in box 12.

  • Section 263A(d) (preproductive expenses). See the instructions for code M in box 12.

  • Section 617 (deduction and recapture of certain mining exploration expenditures).

  • Section 901 (foreign tax credit).

Statements Required of Shareholders of Certain S Corporations Electing To Be Treated as an Entity Under Notice 2020-69

If the corporation and all of its shareholders elect for the corporation to be treated as an entity for purposes of section 951A under Notice 2020-69 for tax years of the corporation ending before September 1, 2020, and after June 21, 2019, you are required to attach a statement to your timely filed (including extensions) original or amended return for that year filed by March 15, 2021. The statement must: (i) identify the election for the corporation to be treated as an entity for purposes of section 951A pursuant to the Notice; and (ii) include the amount of the corporation's transition AE&P (as described in section 3.02(3) of the Notice). The corporation should notify you of this election so you can comply with this statement requirement.

Additional Information

For more information on the treatment of S corporation income, deductions, credits, and other items, see Pub. 535, Business Expenses; Pub. 550, Investment Income and Expenses; and Pub. 925, Passive Activity and At-Risk Rules.

To get forms and publications, see the instructions for your tax return or visit the IRS website at IRS.gov.

Limitations on Losses, Deductions, and Credits

There are potential limitations on corporate losses that you can deduct on your return. These limitations and the order in which you must apply them are as follows: the basis limitations, the at-risk limitations, and the passive activity limitations. These limitations are discussed below.

Other limitations may apply to specific deductions (for example, the section 179 expense deduction). Specific limitations apply before at-risk and passive loss limitations.

Basis Limitations

Generally, the deduction for your share of aggregate losses and deductions reported on Schedule K-1 is limited to the basis of your stock and loans from you to the corporation. For details and exceptions, see section 1366(d). The basis of your stock is generally figured at the end of the corporation's tax year. Any losses and deductions not allowed this year because of the basis limit can be carried forward indefinitely and deducted in a later year subject to the basis limit for that year.

You are responsible for keeping the information needed to figure the basis of your stock in the corporation. Schedule K-1 provides information to help you figure your stock basis at the end of each corporate tax year. The basis of your stock (generally, its cost) is adjusted annually as follows and, except as noted, in the order listed. In addition, basis may be adjusted under other provisions of the Internal Revenue Code. You should generally use the Worksheet for Figuring a Shareholder’s Stock and Debt Basis to figure your aggregate stock and debt basis.

  1. Basis is increased by (a) all income (including tax-exempt income) reported on Schedule K-1, and (b) the excess of the deduction for depletion (other than oil and gas depletion) over the basis of the property subject to depletion.

    .This is an Image: caution.gifYou must report on your return (if you are required to file one) any amount required to be included in gross income for it to increase your basis..

  2. Basis is decreased (but not below zero) by (a) property distributions (including cash) made by the corporation reported on Schedule K-1, box 16, code D, minus (b) the amount of such distributions in excess of the basis in your stock.

  3. Basis is decreased (but not below zero) by (a) nondeductible expenses, and (b) the depletion deduction for any oil and gas property held by the corporation, but only to the extent your share of the property's adjusted basis exceeds that deduction.

  4. Basis is decreased (but not below zero) by all losses and deductions reported on Schedule K-1.

You may elect to decrease your basis under (4) prior to decreasing your basis under (3). If you make this election, any amount described under (3) that exceeds the basis of your stock and debt owed to you by the corporation is treated as an amount described under (3) for the following tax year.

To make the election, attach a statement to your timely filed original or amended return that states you agree to the carryover rule of Regulations section 1.1367-1(g) and the name of the S corporation to which the rule applies. Once made, the election applies to the year for which it is made and all future tax years for that S corporation, unless the IRS agrees to revoke your election.

The basis of each share of stock is increased or decreased (but not below zero) based on its pro rata share of the above adjustments. If the total decreases in basis attributable to a share exceed that share's basis, the excess reduces (but not below zero) the remaining bases of all other shares of stock in proportion to the remaining basis of each of those shares.

Basis of loans.

The basis of your loans to the corporation is generally the balance the corporation owes you, adjusted for any reductions and restorations of loan basis (see the instructions for box 16, code E). Any amounts described in (3) and (4), earlier, not used to offset amounts in (1), earlier, or to reduce your stock basis, are used to reduce your loan basis (to the extent of such basis prior to such reduction).

.This is an Image: caution.gifWhen determining your basis in loans to the corporation, remember that:.

  • Distributions don't reduce loan basis, and

  • Loans that a shareholder guarantees or co-signs aren't part of a shareholder's loan basis. Shareholders only obtain basis from acting as a guarantee or in a similar capacity to the extent the shareholder makes a payment pursuant to the guarantee.

.

See Regulations section 1.1366-2(a) and section 1367 and its regulations for more details.

Worksheet Instructions for Figuring a Shareholder’s Stock and Debt Basis

.This is an Image: caution.gifDon’t use this worksheet if you have made an election under Regulations section 1.1367-1(g)..

Part I. Shareholder Stock Basis

.This is an Image: caution.gifThis worksheet addresses adjustments to stock basis as provided under section 1367. Other code sections might also cause a reduction in S corporation stock basis..

Line 1.

Enter your basis in the stock of the S corporation at the beginning of the corporation’s tax year. Unless this is your initial year owning stock in the S corporation, this amount should be the same as your ending stock basis from the prior tax year.

Stock basis can’t be less than zero.

Don’t include any basis from indebtedness on this line. Stock basis and debt basis must be figured separately. Debt basis is addressed in Part II of this worksheet.

Line 2.

Enter any additional contributions to the capital of the S corporation or any additional acquisitions of stock. Don’t include any loans to the S corporation.

The basis of stock you purchased is usually its cost.

If you contributed property to the S corporation in exchange for stock in a section 351 transaction, your stock basis is generally figured by taking the carryover basis of assets transferred to the corporation, less the liabilities assumed by the corporation. If the assumed liabilities exceed the adjusted tax basis of the contributed assets, see section 357(c). See section 358 for more information on the basis of stock received in a section 351 transaction.

The basis of inherited property is generally the fair market value (FMV) at the date of death or the alternate valuation date.

The basis of stock acquired by gift is generally the basis of the stock in the hands of the donor. There are special rules if the FMV of the stock is less than the donor’s adjusted basis. See Regulations section 1.1015-1.

The basis for stock received as compensation is the FMV on the date the compensation is included in income. See Pub. 551 for details.

Line 3.

Enter on lines 3a through 3m all separately figured and non-separately figured items of income from the Schedule K-1. See below for special instructions.

Reminder.

Enter only positive amounts from the Schedule K-1 on line 3. Negative amounts (decreases to stock basis) are entered on Part III.

Line 3i.

Enter the amount of other income that increases basis. Special rules apply to basis adjustments resulting from section 965 inclusions and deductions. Report the section 965(a) inclusion reported on Schedule K-1, box 17, code AD, reduced by section 965(c) deductions reported on Schedule K-1, box 17, code AD. The amount reported as section 965(c) deductions on Schedule K-1, box 17, code AD, is not treated as a deduction that will separately reduce basis under Part III of this worksheet. See Regulations section 1.965-3(f)(2) for more information.

Line 3j.

Enter the amount by which your cumulative depletion deduction exceeds your proportionate share of basis in the property subject to depletion. See information reported in Schedule K-1, box 15, using code C.

For oil and gas depletion, don’t enter an amount. See the instructions for line 8b for the decrease to basis.

Line 3k.

Enter the sum of the amounts from Schedule K-1, box 16, codes A and B. Also add the section 965(c) deductions from Schedule K-1, box 17, code AD. See Regulations section 1.965-3(f)(2) for more information.

.This is an Image: caution.gifBasis isn’t increased by excluded discharge of indebtedness income of the S corporation under sections 108(a) and 108(d)(7)(A)..

The income reported on line 3 should be reported on the appropriate areas of your return. See specific instructions for Income (Loss), later.

Line 6.

Enter the distributions reported on Schedule K-1, box 16, code D. Don’t include any Form 1099-DIV distributions on this line.

Note.

If the amount of the distribution is more than the stock basis before distributions, report the excess amount as a capital gain on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D. Don’t increase your stock basis for the amount of capital gain reported for the excess. See Nondividend distributions in the Instructions for Form 8949.

Line 8a.

Enter the amount from Schedule K-1, box 16, code C.

Line 8b.

Enter the amount of oil and gas depletion claimed on your personal return up to your proportionate share of basis in the property subject to depletion. Any cumulative depletion in excess of your proportionate share of basis in the property subject to depletion won’t reduce your basis.

Don’t enter an amount for depletion not related to oil and gas property.

Line 8c.

Certain credits require the reduction of both an S corporation's assets as well as the shareholder's stock basis. See sections 50(c)(1) and (5) for details.

Line 11.

Use Part III to figure the total allowable loss and deduction items from stock basis. Enter the total from Part III, line 13, column (c). This amount can’t exceed the amount on line 10.

Line 12.

Use Part II to figure the debt basis restoration, if any. Enter the total from Part II, line 8.

Line 13.

Enter any other decreases to stock basis not accounted for on the lines above. This includes the reduction to basis for the sale or redemption of part of your stock.

.This is an Image: taxtip.gifIf a portion of your stock is redeemed, sold, or otherwise disposed of during the year, attach two separate worksheets. Use the first to figure your stock basis at the date of sale and the second to figure your stock and debt basis at year end..

Worksheet for Figuring a Shareholder’s Stock and Debt Basis

Part I—Shareholder Stock Basis

1. Stock basis at the beginning of the corporation’s tax year 1. _____
2. Basis from any capital contributions made or additional stock acquired during the tax year 2. _____
3a. Ordinary business income (enter losses in Part III) 3a. _____    
b. Net rental real estate income (enter losses in Part III) 3b. _____  
c. Other net rental income (enter losses in Part III) 3c. _____  
d. Interest income 3d. _____  
e. Ordinary dividends 3e. _____  
f. Royalties 3f. _____  
g. Net capital gains (enter losses in Part III) 3g. _____  
h. Net section 1231 gain (enter losses in Part III) 3h. _____  
i. Other income (enter losses in Part III) 3i. _____  
j. Excess depletion adjustment 3j. _____  
k. Tax-exempt income 3k. _____  
l. Recapture of business credits 3l. _____  
m. Other items that increase stock basis 3m. _____  
4. Add lines 3a through 3m 4. _____
5. Stock basis before distributions. Add lines 1, 2, and 4 5. _____
6. Distributions (excluding dividend distributions) 6. _____
  Note. If line 6 is larger than line 5, subtract line 5 from line 6 and report the result as a capital gain on Form 8949 and Schedule D. See instructions.  
7. Stock basis after distributions. Subtract line 6 from line 5. If the result is zero or less, enter -0-, skip lines 8 through 14, and enter -0- on line 15 7. _____
8a. Nondeductible expenses 8a. _____    
b. Depletion for oil and gas 8b. _____  
c. Business credits (sections 50(c)(1) and (5)) 8c. _____  
9. Add lines 8a through 8c 9. _____
10. Stock basis before loss and deduction items. Subtract line 9 from line 7. If the result is zero or less, enter -0-, skip lines 11 through 14, and enter -0- on line 15 10. _____
11. Allowable loss and deduction items. Enter the amount from Part III, line 13, column (c) 11. _____
12. Debt basis restoration (see net increase in instructions for Part II, line 8) 12. _____
13. Other items that decrease stock basis 13. _____
14. Add lines 11, 12, and 13 14. _____
15. Stock basis at the end of the corporation’s tax year. Subtract line 14 from line 10. If the result is zero or less, enter -0- 15. _____

Part II. Shareholder Debt Basis

.This is an Image: taxtip.gifIf you have more than three debts , use additional copies of Part II..

You must complete this section if you have personally loaned money to the corporation.

You must account for each formal note (notes with a written instrument) made to your S corporation by entering it separately in its own column. You can’t aggregate multiple loans into a single column. If you have more than three loans, use additional copies of Part II.

Loans made to the S corporation that aren’t evidenced by a written instrument are referred to as an open account debt and aren’t separately tracked. If an open account debt has a year-end balance of more than $25,000, it will be classified as a formal note at the beginning of the next tax year and must be separately tracked.

.This is an Image: caution.gifLoans that a shareholder guarantees or co-signs aren’t part of a shareholder’s loan basis except to the extent the shareholder makes a payment on the loan guaranteed or co-signed..

Line 1.

Enter the balance of each loan to the S corporation at the beginning of the corporation’s tax year in a separate column.

Line 2.

Enter any new loans made during the tax year and evidenced by a formal note in a separate column. If a formal note is refinanced, any increase should be entered on line 2 under the same column as the original loan.

Advances and repayments made during the S corporation’s tax year on an open account are netted at the close of the S corporation’s tax year to determine the amount of any net advance or net repayment. See Regulations section 1.1367-2(d)(2). Enter any net advances on line 2 under the same column as the open account debt. If this is the first year of the open account debt, enter the net advance in its own column on line 2.

.This is an Image: caution.gifAny debt that exceeded $25,000 at the end of the prior year is treated as a formal note for purposes of calculating the gain on loan repayment. See Regulations section 1.1367-2(a)(2)(ii)..

Line 4.

For a formal note, enter the amount of principal repayment specific to each loan.

For open account debt, if the repayments exceed the advances for the tax year, the net repayment should be entered on line 4.

Line 6.

Enter the debt basis of your loan(s) to the S corporation at the beginning of the corporation’s tax year.

Line 7.

Enter the amount from line 2 on line 7.

Line 8.

You have reduced debt basis if line 6 is less than line 1.

Per section 1367(b)(2)(B), if debt basis has been reduced, it can only be restored with a net increase. The net increase is the amount by which the items that increase stock basis per section 1367(a)(1) (for example, income, tax exempt income, and excess depletion) exceed the items that decrease stock basis per section 1367(a)(2) (for example, losses, deductions, nondeductibles, nondividend distributions, etc.). See Regulations section 1.1367-2(c)(1).

The net increase is figured as follows:

Part I, line 4

Minus Part I, line 6

Minus Part I, line 9

Minus Part I, line 13 (as applicable)

Minus Part III, line 13(a)

Minus Part III, line 13(b)

If the net increase figured exceeds the total reduction in debt basis (line 1 minus line 6), then the restoration is limited to the amount needed to restore debt basis to the face of the loan.

.This is an Image: caution.gifIf you have multiple debts, the net increase is applied first to restore the reduction of basis in any debt repaid in the tax year to the extent necessary to offset any gain that would otherwise be realized. Any remaining net increase is applied to each debt in proportion to its reduced basis. See Regulations section 1.1367-2(c)(2)..

Line 13.

Enter the smaller of the nondeductible expenses and oil and gas depletion deductions in excess of stock basis (Part I, line 9 minus line 7) or Part II, line 12.

Nondeductible expenses in excess of stock and debt basis don’t carry forward (unless an election under Regulations section 1.1367-1(g) is made. As noted earlier, don’t use this worksheet if that election has been made).

Line 15.

Enter the amount from Part III, line 13(d), in the total column on line 15.

.This is an Image: caution.gifIf you have more than one loan to the corporation, any allocated reduction is prorated to the loans based on the ratio that each individual loan basis bears to the aggregate bases of the loans. See Regulations section 1.1367-2(b)(3)..

Line 19.

The character of the gain on repayment is dependent on whether the debt is evidenced by a formal note or is an open account.

Debt evidenced by a formal note will result in capital gain and should be reported on Form 8949 and Schedule D.

Any open account debt will result in ordinary gain and should be reported on Form 4797, Sales of Business Property.

.This is an Image: caution.gifGain recognized on loan repayment doesn’t increase basis..

Part II—Shareholder Debt Basis
Section A—Amount of Debt (If more than three debts, see instructions.)
Description Debt 1
❑ Formal note
❑ Open account
debt
Debt 2
❑ Formal note
❑ Open account
debt
Debt 3
❑ Formal note
❑ Open account
debt
Total
1. Loan balance at the beginning of the corporation’s tax year        
2. Additional loans (see instructions)        
3. Loan balance before repayment. Combine lines 1 and 2        
4. Principal portion of debt repayment (this line doesn’t include interest) ( ) ( ) ( ) ( )
5. Loan balance at the end of the corporation’s tax year. Combine lines 3 and 4        
Section B—Adjustments to Debt Basis
6. Debt basis at the beginning of the corporation’s tax year        
7. Enter the amount, if any, from line 2        
8. Debt basis restoration (see instructions)        
9. Debt basis before repayment. Combine lines 6, 7, and 8        
10. Divide line 9 by line 3        
11. Nontaxable debt repayment. Multiply line 10 by line 4        
12. Debt basis before nondeductible expenses and losses. Subtract line 11 from line 9        
13. Nondeductible expenses and oil and gas depletion deductions in excess of stock basis        
14. Debt basis before losses and deductions. Subtract line 13 from line 12. If the result is zero or less, enter -0-        
15. Allowable losses in excess of stock basis. Enter the amount from Part III, line 13, column (d)        
16. Debt basis at the end of the corporation’s tax year. Subtract line 15 from line 14. If the result is zero or less, enter -0-        
Section C—Gain on Loan Repayment
17. Repayment. Enter the amount from line 4        
18. Nontaxable repayments. Enter the amount from line 11        
19. Reportable gain. Subtract line 18 from line 17        

Part III. Shareholder Allowable Loss and Deduction Items

The corporate losses and other deduction items are limited to the sum of your stock and debt basis. When stock and debt basis is insufficient, and there is more than one type of loss or deduction item that reduces basis, the amounts allowed as a loss or deduction are allocated on a pro rata basis. See Regulations sections 1.1366-2(a)(4) and (5).

Loss and deductions in excess of basis are suspended and carried forward indefinitely and the character of the loss and deduction items is retained.

Part III shows the pro rata allocation and tracks any loss or deduction carryforward.

Column (a).

Enter the loss and deduction amounts for each item as reported on your Schedule K-1.

Column (b).

Enter any loss or deduction items disallowed due to basis limitations in prior years that were carried forward.

Column (c).

If Part I, line 10, is zero, skip column (c).

If stock basis, as reported on Part I, line 10, is greater than the sum of column (a) and column (b), line 13, enter the sum of each line for column (a) plus column (b) in column (c). If stock basis, as reported on Part I, line 10, is less than the sum of column (a) and column (b), line 13, enter the pro rata amount on the corresponding line in column (c). The total allocation amount reported in column (c), line 13, can’t exceed the amount reported on Part I, line 10.

Column (d).

If Part II, line 14, is zero, skip column (d).

If column (c), line 13, is less than Part I, line 10, skip column (d).

If debt basis, as reported on Part II, line 14, is greater than column (a) plus column (b) minus column (c), line 13, enter column (a) plus column (b) minus column (c), in column (d) for each line item. If debt basis, as reported on Part II, line 14, is less than column (a) plus column (b) minus column (c), line 13, enter the pro rata amount on the corresponding line in column (d). The total allocation amount reported in column (d), line 13, can’t exceed the amount reported on Part II, line 14.

The allowable losses and deductions from columns (c) and (d) should be reported on the appropriate areas of your return (subject to any additional limitations).

Column (e).

If the sum of column (a) plus column (b) exceeds the sum of column (c) plus column (d), enter the excess in column (e) for each line item. If you disposed of all your stock, see Regulations section 1.1366-2(a)(6).

Part III—Shareholder Allowable Loss and Deduction Items
Description (a) Current year losses and deductions (b) Carryover amounts (column (e)) from the previous year (c) Allowable loss from stock basis (d) Allowable loss from debt basis (e) Carryover amounts
1. Ordinary business loss          
2. Net rental real estate loss          
3. Other net rental loss          
4. Net capital loss          
5. Net section 1231 loss          
6. Other loss          
7. Section 179 deductions          
8. Charitable contributions          
9. Investment interest expense          
10. Section 59(e)(2) expenditures          
11. Other deductions          
12. Foreign taxes paid or accrued          
13. Total loss. Combine lines 1 through 12 for each column. Enter the total loss in column (c) on line 11 of Part I and enter the total loss in column (d) on line 15 of Part II          

At-Risk Limitations

Generally, if you have (a) a loss or other deduction from any activity carried on as a trade or business or for the production of income by the corporation, and (b) amounts in the activity for which you aren't at risk, you will have to complete Form 6198, At-Risk Limitations, to figure your allowable loss for the activity.

The at-risk rules generally limit the amount of loss and other deductions that you can claim to the amount you could actually lose in the activity. These losses and deductions include a loss on the disposition of assets and the section 179 expense deduction. However, if you acquired your stock before 1987, the at-risk rules don't apply to losses from an activity of holding real property placed in service before 1987 by the corporation. The activity of holding mineral property doesn't qualify for this exception.

Generally, you aren't at risk for amounts such as the following.

  • The basis of your stock in the corporation or the basis of your loans to the corporation if the cash or other property used to purchase the stock or make the loans was from a source (a) covered by nonrecourse indebtedness (except for certain qualified nonrecourse financing, as defined in section 465(b)(6)); (b) protected against loss by a guarantee, stop-loss agreement, or other similar arrangement; or (c) that is covered by indebtedness from a person who has an interest in the activity or from a person related to a person (except you) having such an interest, other than a creditor.

  • Any cash or property contributed to a corporate activity, or your interest in the corporate activity, that is (a) covered by nonrecourse indebtedness (except for certain qualified nonrecourse financing, as defined in section 465(b)(6)); (b) protected against loss by a guarantee, stop-loss agreement, or other similar arrangement; or (c) covered by indebtedness from a person who has an interest in the activity or from a person related to a person (except you) having such an interest, other than a creditor.

Any loss from a section 465 activity not allowed for this tax year will be treated as a deduction allocable to the activity in the next tax year.

Since at-risk limitations apply for each activity, you should get a separate statement of income, expenses, and other items, for each activity from the corporation.

Note.

Schedule K-1, box 18, will be checked when a statement is attached.

Passive Activity Limitations

Section 469 provides rules that limit the deduction of certain losses and credits. These rules apply to shareholders who:

  • Are individuals, estates, or trusts; and

  • Have a passive activity loss or credit for the tax year.

Generally, passive activities include:

  1. Trade or business activities in which you didn't materially participate, and

  2. Activities that meet the definition of rental activities under Temporary Regulations section 1.469-1T(e)(3) and Regulations section 1.469-1(e)(3).

Passive activities don't include the following.

  1. Trade or business activities in which you materially participated.

  2. Rental real estate activities in which you materially participated if you were a real estate professional for the tax year. You were a real estate professional only if you met both of the following conditions.

    1. More than half of the personal services you performed in trades or businesses were performed in real property trades or businesses in which you materially participated.

    2. You performed more than 750 hours of services in real property trades or businesses in which you materially participated.

    If you are married filing jointly, either you or your spouse must separately meet both (a) and (b) of the above conditions, without taking into account services performed by the other spouse.

    A real property trade or business is any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business. Services you performed as an employee aren't treated as performed in a real property trade or business unless you owned more than 5% of the stock (or more than 5% of the capital or profits interest) in the employer.

  3. The rental of a dwelling unit any shareholder used for personal purposes during the year for more than the greater of 14 days or 10% of the number of days that the residence was rented at fair rental value.

  4. Activities of trading personal property for the account of owners of interests in the activities.

If you have a passive activity loss or credit, use Form 8582, Passive Activity Loss Limitations, to figure your allowable passive losses, and Form 8582-CR, Passive Activity Credit Limitations, to figure your allowable passive credits. See the instructions for these forms for details.

If the corporation has more than one activity, it will attach a statement to your Schedule K-1 that identifies each activity (trade or business activity, rental real estate activity, rental activity other than rental real estate, portfolio income) and specifies the income (loss), deductions, and credits from each activity.

Note.

Schedule K-1, box 19, will be checked when a statement is attached.

Material participation.

You must determine if you materially participated (a) in each trade or business activity held through the corporation, and (b) if you were a real estate professional (defined earlier), in each rental real estate activity held through the corporation.

Each interest in rental real estate is a separate activity, unless you elect to treat all interests in rental real estate as one activity. For details on making this election, see the Instructions for Schedule E (Form 1040), Supplemental Income and Loss.

All determinations of material participation are based on your participation during the corporation's tax year.

Material participation standards for shareholders who are individuals are listed below. Special rules apply to certain retired or disabled farmers and to the surviving spouses of farmers. See the Instructions for Form 8582 for details.

Individuals.

If you are an individual, you materially participated in an activity only if one or more of the following apply.

  1. You participated in the activity for more than 500 hours during the tax year.

  2. Your participation in the activity for the tax year constituted substantially all the participation in the activity of all individuals (including individuals who aren't owners of interests in the activity).

  3. You participated in the activity for more than 100 hours during the tax year, and your participation in the activity for the tax year wasn't less than the participation in the activity of any other individual (including individuals who weren’t owners of interests in the activity) for the tax year.

  4. The activity was a significant participation activity for the tax year, and you participated in all significant participation activities (including activities outside the corporation) during the year for more than 500 hours. A significant participation activity is any trade or business activity in which you participated for more than 100 hours during the year and in which you didn't materially participate under any of the material participation tests (other than this test).

  5. You materially participated in the activity for any 5 tax years (whether or not consecutive) during the 10 tax years that immediately precede the tax year.

  6. The activity was a personal service activity and you materially participated in the activity for any 3 tax years (whether or not consecutive) preceding the tax year. A personal service activity involves the performance of personal services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or any other trade or business in which capital isn't a material income-producing factor.

  7. Based on all the facts and circumstances, you participated in the activity on a regular, continuous, and substantial basis during the tax year.

Work counted toward material participation.

Generally, any work that you or your spouse does in connection with an activity held through an S corporation (where you own your stock at the time the work is done) is counted toward material participation. However, work in connection with the activity isn't counted toward material participation if either of the following applies.

  1. The work isn't the type of work that owners of the activity would usually do, and one of the principal purposes of the work that you or your spouse does is to avoid the passive loss or credit limitations.

  2. You do the work in your capacity as an investor and you aren't directly involved in the day-to-day operations of the activity. Examples of work done as an investor that wouldn't count toward material participation include:

    1. Studying and reviewing financial statements or reports on operations of the activity,

    2. Preparing or compiling summaries or analyses of the finances or operations of the activity for your own use, and

    3. Monitoring the finances or operations of the activity in a nonmanagerial capacity.

Effect of determination.

Income (loss), deductions, and credits from an activity are nonpassive if you determine that:

  • You materially participated in a trade or business activity of the corporation, or

  • You were a real estate professional (defined earlier) in a rental real estate activity of the corporation.

If you determine that you didn't materially participate in a trade or business activity of the corporation or if you have income (loss), deductions, or credits from a rental activity of the corporation (other than a rental real estate activity in which you materially participated as a real estate professional), the amounts from that activity are passive. Report passive income (losses), deductions, and credits as follows.

  1. If you have an overall gain (the excess of income over deductions and losses, including any prior year unallowed loss) from a passive activity, report the income, deductions, and losses from the activity as indicated in these instructions.

  2. If you have an overall loss (the excess of deductions and losses, including any prior year unallowed loss, over income) or credits from a passive activity, report the income, deductions, losses, and credits from all passive activities using the Instructions for Form 8582 or Form 8582-CR, to see if your deductions, losses, and credits are limited under the passive activity rules.

Special allowance for a rental real estate activity.

If you actively participated in a rental real estate activity, you may be able to deduct up to $25,000 of the loss (or credit equivalent to a $25,000 deduction) from the activity from nonpassive income. This "special allowance" is an exception to the general rule disallowing losses in excess of income from passive activities. The special allowance isn't available if you were married, file a separate return for the year, and didn't live apart from your spouse at all times during the year.

Only individuals can actively participate in a rental real estate activity. However, a decedent's estate (including a qualified revocable trust for which a section 645 election has been made) is treated as actively participating for its tax years ending less than 2 years after the decedent's death, if the decedent would have satisfied the active participation requirement for the activity for the tax year the decedent died.

You aren't considered to actively participate in a rental real estate activity if, at any time during the tax year, your interest (including your spouse's interest) in the activity was less than 10% (by value) of all interests in the activity.

Active participation is a less stringent requirement than material participation. You may be treated as actively participating if you participated, for example, in making management decisions or arranging for others to provide services (such as repairs) in a significant and bona fide sense. Management decisions that can count as active participation include approving new tenants, deciding rental terms, approving capital or repair expenditures, and other similar decisions.

Modified adjusted gross income limitation.

The maximum special allowance that single individuals and married individuals filing a joint return can qualify for is $25,000. The maximum is $12,500 for married individuals who file separate returns and who lived apart at all times during the year. The maximum special allowance for which an estate can qualify is $25,000 reduced by the special allowance for which the surviving spouse qualifies.

If your modified adjusted gross income (defined below) is $100,000 or less ($50,000 or less if married filing separately), your loss is deductible up to the maximum special allowance referred to in the preceding paragraph. If your modified adjusted gross income is more than $100,000 (more than $50,000 if married filing separately), the special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your modified adjusted gross income. When modified adjusted gross income is $150,000 or more ($75,000 or more if married filing separately), there is no special allowance.

Modified adjusted gross income is your adjusted gross income figured without taking into account the following amounts, if applicable.

  • Any passive activity loss.

  • Any rental real estate loss allowed under section 469(c)(7) to real estate professionals (defined earlier).

  • Any overall loss from a publicly traded partnership.

  • Any taxable social security or equivalent railroad retirement benefits.

  • Any deductible contributions to an IRA or certain other qualified retirement plans under section 219.

  • The domestic production activities deduction.

  • The student loan interest deduction.

  • The tuition and fees deduction.

  • The deductible part of self-employment taxes.

  • The exclusion from income of interest from Series EE or I U.S. Savings Bonds used to pay higher education expenses.

  • The exclusion of amounts received under an employer's adoption assistance program.

Commercial revitalization deduction.

The special $25,000 allowance for the commercial revitalization deduction from rental real estate activities isn't subject to the active participation rules or modified adjusted gross income limits discussed above. See section 469(i)(3)(C) as in effect before March 23, 2018, and the instructions for box 12, code N, for more information.

Special rules for certain other activities.

If you have net income (loss), deductions, or credits from any activity to which special rules apply, the corporation will identify the activity and all amounts relating to it on Schedule K-1 or on an attached statement.

If you have net income subject to recharacterization under Temporary Regulations section 1.469-2T(f) and Regulations section 1.469-2(f), report such amounts according to the Instructions for Form 8582.

If you have net income (loss), deductions, or credits from either of the following activities, treat such amounts as nonpassive and report them as indicated in these instructions.

  1. The rental of a dwelling unit any shareholder used for personal purposes during the year for more than the greater of 14 days or 10% of the number of days that the residence was rented at fair rental value.

  2. Trading personal property for the account of owners of interests in the activity.

Self-charged interest.

The corporation will report any "self-charged" interest income or expense that resulted from loans between you and the corporation (or between the corporation and another S corporation or partnership if both entities have the same owners with the same proportional interest in each entity). If there was more than one activity, the corporation will provide a statement allocating the interest income or expense with respect to each activity. The self-charged interest rules don't apply to your interest in the S corporation if the corporation made an election under Regulations section 1.469-7(g) to avoid the application of these rules. See the Instructions for Form 8582 for details.

Specific Instructions

Part III. Shareholder's Share of Current Year Income, Deductions, Credits, and Other Items

The amounts shown in boxes 1 through 17 reflect your share of income, loss, deductions, credits, and other items, from corporate business or rental activities without reference to limitations on losses, credits, or other items that may have to be adjusted because of:

  1. The adjusted basis of your stock and debt in the corporation,

  2. The at-risk limitations, and

  3. The passive activity limitations.

For information on these provisions, see Limitations on Losses, Deductions, and Credits, earlier.

Other limitations may apply to specific deductions (for example, the section 179 expense deduction). Generally, specific limitations apply before the at-risk and passive loss limitations.

If you are an individual, and the above limitations don't apply to the amounts shown on your Schedule K-1, take the amounts shown and report them on the appropriate lines of your tax return. If any of the above limitations apply, adjust the amounts on Schedule K-1 before you report them on your return.

When applicable, the passive activity limitations on losses are applied after the limitations on losses for a shareholder's basis in stock and debt and the shareholder's at-risk amount.

If you file your tax return on a calendar year basis, but the corporation files a return for a fiscal year, report the amounts on your tax return for the year in which the corporation's fiscal year ends. For example, if the corporation's tax year ends in February 2021, report the amounts on your 2021 tax return.

If you have losses, deductions, or credits from a prior year that weren’t deductible or usable because of certain limitations, such as the basis limitations or the at-risk limitations, take them into account in determining your income, loss, or credits for this year. However, except for passive activity losses and credits, don't combine the prior year amounts with any amounts shown on this Schedule K-1 to get a net figure to report on your return. Instead, report the amounts on your return on a year-by-year basis.

.This is an Image: caution.gifIf you have amounts other than those shown on Schedule K-1 to report on Schedule E (Form 1040), enter each item separately on Schedule E (Form 1040), line 28..

Codes.

In box 10 and boxes 12 through 17, the corporation will identify each item by entering a code in the column to the left of the dollar amount entry space. See List of Codes, later.

Attached statements.

The corporation will enter an asterisk (*) after the code, if any, in the column to the left of the dollar amount entry space for each item for which it has attached a statement providing additional information. For those informational items that can't be reported as a single dollar amount, the corporation will enter an asterisk in the left column and enter "STMT" in the dollar amount entry space to indicate the information is provided on an attached statement.

Income (Loss)

Box 1. Ordinary Business Income (Loss)

The amount reported in box 1 is your share of the ordinary income (loss) from trade or business activities of the corporation. Generally, where you report this amount on Form 1040 or 1040-SR depends on whether the amount is from an activity that is a passive activity to you. If you are an individual shareholder filing a 2020 Form 1040 or 1040-SR, find your situation below and report your box 1 income (loss) as instructed after applying the basis and at-risk limitations on losses. See Limitations on Losses, Deductions, and Credits, earlier. If the corporation had more than one trade or business activity, it will attach a statement identifying the income or loss from each activity.

  1. Report box 1 income (loss) from corporate trade or business activities in which you materially participated on Schedule E (Form 1040), line 28, column (i) or (k).

  2. Report box 1 income (loss) from corporate trade or business activities in which you didn't materially participate, as follows.

    1. If income is reported in box 1, report the income on Schedule E (Form 1040), line 28, column (h).

    2. If a loss is reported in box 1, follow the Instructions for Form 8582 to figure how much of the loss can be reported on Schedule E (Form 1040), line 28, column (g).

Box 2. Net Rental Real Estate Income (Loss)

Generally, the income (loss) reported in box 2 is a passive activity amount for all shareholders. However, the income (loss) in box 2 isn't from a passive activity if you were a real estate professional (defined earlier) and you materially participated in the activity. If the corporation had more than one rental real estate activity, it will attach a statement identifying the income or loss from each activity.

If you are filing a 2020 Form 1040 or 1040-SR, use the following instructions to determine where to report a box 2 amount after applying the basis and at-risk limitations on losses. See Limitations on Losses, Deductions, and Credits, earlier.

  1. If you have a loss from a passive activity in box 2 and you meet all the following conditions, report the loss on Schedule E (Form 1040), line 28, column (g).

    1. You actively participated in the corporate rental real estate activities. See Special allowance for a rental real estate activity, earlier.

    2. Rental real estate activities with active participation were your only passive activities.

    3. You have no prior year unallowed losses from these activities.

    4. If you are a married person filing separately, you lived apart from your spouse all year.

    5. Your total loss from the rental real estate activities wasn't more than $25,000 (not more than $12,500 if married filing separately).

    6. You have no current or prior year unallowed credits from a passive activity.

    7. Your modified adjusted gross income wasn't more than $100,000 (not more than $50,000 if married filing separately and you lived apart from your spouse all year).

  2. If you have a loss from a passive activity in box 2 and you don't meet all the conditions in (1) above, follow the Instructions for Form 8582 to figure how much of the loss you can report on Schedule E (Form 1040), line 28, column (g).

  3. If you were a real estate professional and you materially participated in the activity, report box 2 income (loss) on Schedule E (Form 1040), line 28, column (i) or (k).

  4. If you have income from a passive activity in box 2, report the income on Schedule E (Form 1040), line 28, column (h).

Box 3. Other Net Rental Income (Loss)

The amount in box 3 is a passive activity amount for all shareholders. If the corporation had more than one rental activity, it will attach a statement identifying the income or loss from each activity. After applying the limitations on losses and deductions, report the income or loss as follows.

  1. If box 3 is a loss, follow the Instructions for Form 8582 to figure how much of the loss can be reported on Schedule E (Form 1040), line 28, column (g).

  2. If income is reported in box 3, report the income on Schedule E (Form 1040), line 28, column (h).

See Limitations on Losses, Deductions, and Credits, earlier.

Portfolio Income

Portfolio income or loss (shown in boxes 4 through 8b and in box 10, code A) isn't subject to the passive activity limitations. Portfolio income includes income (not derived in the ordinary course of a trade or business) from interest, ordinary dividends, annuities, or royalties, and gain or loss on the sale of property that produces such income or is held for investment.

Box 4. Interest Income

Report interest income on Form 1040 or 1040-SR, line 2b.

Box 5a. Ordinary Dividends

Report ordinary dividends on Form 1040 or 1040-SR, line 3b. The amount in box 5a may be attributable to previously taxed earnings and profits (PTEP) in annual PTEP accounts that you have with respect to a foreign corporation. You will need to determine the amount of the ordinary dividends that are attributable to PTEP in your annual PTEP accounts.

Box 5b. Qualified Dividends

Report any qualified dividends on Form 1040 or 1040-SR, line 3a. The amount in box 5b may be attributable to PTEP in annual PTEP accounts that you have with respect to a foreign corporation. You will need to determine the amount of the qualified dividends that are attributable to PTEP in your annual PTEP accounts.

.This is an Image: taxtip.gifQualified dividends are excluded from investment income, but you may elect to include part or all of these amounts in investment income. See the instructions for line 4g of Form 4952, Investment Interest Expense Deduction, for important information on making this election..

.This is an Image: caution.gifIf you have any foreign source qualified dividends, see the instructions for box 14, later..

Box 6. Royalties

Report royalties on Schedule E (Form 1040), line 4.

Box 7. Net Short-Term Capital Gain (Loss)

After applying the limitations on losses and deductions, report the net short-term capital gain (loss) on Schedule D (Form 1040), line 5. See Limitations on Losses, Deductions, and Credits, earlier.

Box 8a. Net Long-Term Capital Gain (Loss)

After applying the limitations on losses and deductions, report the net long-term capital gain (loss) on Schedule D (Form 1040), line 12. See Limitations on Losses, Deductions, and Credits, earlier.

.This is an Image: caution.gifIf you have any foreign source net long-term capital gain (loss), see the instructions for box 14, later..

Box 8b. Collectibles (28%) Gain (Loss)

After applying the limitations on losses and deductions, report collectibles gain or loss on line 4 of the 28% Rate Gain Worksheet—Line 18 in the Instructions for Schedule D (Form 1040). See Limitations on Losses, Deductions, and Credits, earlier.

Box 8c. Unrecaptured Section 1250 Gain

There are three types of unrecaptured section 1250 gain. Report your share of this unrecaptured gain on the Unrecaptured Section 1250 Gain Worksheet—Line 19 in the Instructions for Schedule D (Form 1040) as follows.

  • Report unrecaptured section 1250 gain from the sale or exchange of the corporation's business assets on line 5.

  • Report unrecaptured section 1250 gain from the sale or exchange of an interest in a partnership on line 10.

  • Report unrecaptured section 1250 gain from an estate, trust, regulated investment company (RIC), or real estate investment trust (REIT) on line 11.

If the corporation reports only unrecaptured section 1250 gain from the sale or exchange of its business assets, it will enter a dollar amount in box 8c. If it reports the other two types of unrecaptured gain, it will provide an attached statement that shows the amount for each type of unrecaptured section 1250 gain.

.This is an Image: caution.gifIf you have any foreign source unrecaptured section 1250 gain, see the instructions for box 14, later..

Box 9. Net Section 1231 Gain (Loss)

The amount in box 9 is generally passive if it is from a:

  • Rental activity, or

  • Trade or business activity in which you didn't materially participate.

However, an amount from a rental real estate activity isn't from a passive activity if you were a real estate professional (defined earlier) and you materially participated in the activity.

If the amount is either (a) a loss that isn't from a passive activity, or (b) a gain, report it on Form 4797, line 2, column (g), after applying the basis and at-risk limitations on losses. See Limitations on Losses, Deductions, and Credits, earlier. Don't complete columns (b) through (f) on line 2 of Form 4797. Instead, enter "From Schedule K-1 (Form 1120-S)" across these columns.

If the amount is a loss from a passive activity, see Passive Loss Limitations in the Instructions for Form 4797. After applying the limitations on losses and deductions, report the loss following the Instructions for Form 8582 to figure how much of the loss is allowed on Form 4797. If the corporation had net section 1231 gain (loss) from more than one activity, it will attach a statement that will identify the section 1231 gain (loss) from each activity.

.This is an Image: caution.gifIf you have any foreign source net section 1231 gain (loss), see the instructions for box 14, later..

Box 10. Other Income (Loss)

See List of Codes, later.

.This is an Image: caution.gifLosses reported in box 10 may be limited. See Limitations on Losses, Deductions, and Credits, earlier..

Code A. Other portfolio income (loss).

The corporation will report portfolio income other than interest, ordinary dividend, royalty, and capital gain (loss) income, and attach a statement to tell you what kind of portfolio income is reported.

If the corporation held a residual interest in a real estate mortgage investment conduit (REMIC), it will report on the statement your share of REMIC taxable income (net loss) that you report on Schedule E (Form 1040), line 38, column (d). The statement will also report your share of any "excess inclusion" that you report on Schedule E (Form 1040), line 38, column (c), and your share of section 212 expenses that you report on Schedule E (Form 1040), line 38, column (e).

Code B. Involuntary conversions.

This is your net loss from involuntary conversions due to casualty or theft. The corporation will give you a statement that shows the amounts to be reported on Form 4684, Casualties and Thefts, line 34, columns (b)(i), (b)(ii), and (c).

If there was a gain (loss) from a casualty or theft to property not used in a trade or business or for income-producing purposes, the corporation will provide you with the information you need to complete Form 4684.

Code C. Section 1256 contracts and straddles.

The corporation will report any net gain or loss from section 1256 contracts. Report this amount on Form 6781, Gains and Losses From Section 1256 Contracts and Straddles.

Code D. Mining exploration costs recapture.

The corporation will give you a statement that shows the information needed to recapture certain mining exploration costs (section 617). See Pub. 535 for details.

Code E. Section 951A income.

If the corporation (and its shareholders, as applicable) has elected under Notice 2020-69 to be treated as an entity for purposes of section 951A, this is your share of the corporation's global intangible low-taxed income amount. Report this amount on Schedule 1 (Form 1040), line 8, or the comparable line of your income tax return, as an addition to any amount of global intangible low-taxed income (GILTI) under section 951A otherwise computed on Form 8992.

.This is an Image: caution.gifThis information will be provided on line 10 using code E only if the corporation (and its shareholders, if applicable) has elected to be treated as an entity for purposes of section 951A under Notice 2020-69. If no election has been made under the Notice, see instructions for line 17d, code AD..

Code F.

Reserved for future use.

Code G. Income under subpart F (other than inclusions under section 951A).

The corporation will provide your share of its section 951(a) inclusions. Report this amount on your Form 1040, 1040-SR, or relevant income tax return.

.This is an Image: caution.gifIf the corporation has chosen to apply the provisions of Proposed Regulations section 1.958-1(d) for the tax year, no information will be provided on line 10 using code G. Instead, the corporation will provide information needed to figure your section 951(a) inclusions on line 17, code AD..

Code H. Other income (loss).

Amounts with code H are other items of income, gain, or loss not included in boxes 1 through 9 or in box 10 using codes A through G. The corporation should give you a description and the amount of your share for each of these items.

Report loss items that are passive activity amounts to you following the Instructions for Form 8582.

Code H items may include the following.

  • Income from recoveries of tax benefit items. A tax benefit item is an amount you deducted in a prior tax year that reduced your income tax. Report this amount on Schedule 1 (Form 1040), line 8, to the extent it reduced your tax in the prior year.

  • Gambling gains and losses.

    1. If the corporation wasn't engaged in the trade or business of gambling, (a) report gambling winnings on Schedule 1 (Form 1040), line 8, and (b) deduct gambling losses to the extent of winnings on Schedule A (Form 1040), line 16.

    2. If the corporation was engaged in the trade or business of gambling, (a) report gambling winnings on Schedule E (Form 1040), line 28, and (b) deduct gambling losses (to the extent of winnings) on Schedule E (Form 1040), line 28, column (i).

  • Gain (loss) from the disposition of an interest in oil, gas, geothermal, or other mineral properties. The corporation will attach a statement that provides a description of the property, your share of the amount realized from the disposition, your share of the corporation's adjusted basis in the property (for other than oil or gas properties), and your share of the total intangible drilling costs, development costs, and mining exploration costs (section 59(e) expenditures) passed through for the property. You must figure your gain or loss from the disposition by increasing your share of the adjusted basis by the intangible drilling costs, development costs, or mine exploration costs for the property that you capitalized (that is, costs that you didn't elect to deduct under section 59(e)). Report a loss in Part I of Form 4797. Report a gain in Part III of Form 4797 in accordance with the instructions for line 28. See Regulations section 1.1254-4 for details.

  • Net short-term capital gain (loss) and net long-term capital gain (loss) from Schedule D (Form 1120-S) that isn't portfolio income. An example is gain or loss from the disposition of nondepreciable personal property used in a trade or business activity of the corporation. Report total net short-term gain (loss) on Schedule D (Form 1040), line 5. Report the total net long-term gain (loss) on Schedule D (Form 1040), line 12.

  • Gain from the sale or exchange of qualified small business (QSB) stock (as defined in the Instructions for Schedule D (Form 1040)) eligible for the section 1202 exclusion. The corporation should also give you (a) the name of the corporation that issued the QSB stock, (b) your share of the corporation's adjusted basis and sales price of the QSB stock, and (c) the dates the QSB stock was bought and sold. The following additional limitations apply at the shareholder level.

    1. You must have held an interest in the corporation when the corporation acquired the QSB stock and at all times thereafter until the corporation disposed of the QSB stock.

    2. Your share of the eligible section 1202 gain can't exceed the amount that would have been allocated to you based on your interest in the corporation at the time the QSB stock was acquired.

    See Form 8949, Schedule D (Form 1040), and the related instructions for details on how to report the gain and the amount of the allowable exclusion.

  • Gain eligible for section 1045 rollover (replacement stock purchased by the corporation). The corporation should also give you (a) the name of the corporation that issued the qualified small business (QSB) stock, (b) your share of the corporation's adjusted basis and sales price of the QSB stock, and (c) the dates the QSB stock was bought and sold. To qualify for the section 1045 rollover:

    1. You must have held an interest in the corporation during the entire period in which the corporation held the QSB stock (more than 6 months prior to the sale), and

    2. Your share of the gain eligible for the section 1045 rollover can't exceed the amount that would have been allocated to you based on your interest in the corporation at the time the QSB stock was acquired.

    See Form 8949, Schedule D (Form 1040), and the related instructions for details on how to report the gain and the amount of the allowable postponed gain.

  • Gain eligible for section 1045 rollover (replacement stock not purchased by the corporation). The corporation should also give you (a) the name of the corporation that issued the qualified small business (QSB) stock, (b) your share of the corporation's adjusted basis and sales price of the QSB stock, and (c) the dates the QSB stock was bought and sold. To qualify for the section 1045 rollover:

    1. You must have held an interest in the corporation during the entire period in which the corporation held the QSB stock (more than 6 months prior to the sale),

    2. Your share of the gain eligible for the section 1045 rollover can't exceed the amount that would have been allocated to you based on your interest in the corporation at the time the QSB stock was acquired, and

    3. You must purchase other QSB stock (as defined in the Instructions for Schedule D (Form 1040)) during the 60-day period that began on the date the QSB stock was sold by the corporation.

    See Form 8949, Schedule D (Form 1040), and the related instructions for details on how to report the gain and the amount of the allowable postponed gain.

Deductions

.This is an Image: caution.gifThere are potential limitations on corporate losses you can deduct on your return. These limitations and the order in which you must apply them are as follows: the basis limitations, the at-risk limitations, and the passive activity limitations. See Limitations on Losses, Deductions, and Credits, earlier..

Box 11. Section 179 Deduction

Use this amount, along with the total cost of section 179 property placed in service during the year from other sources, to complete Part I of Form 4562, Depreciation and Amortization. The corporation will report on an attached statement your share of the cost of any qualified enterprise zone property or qualified real property it placed in service during its tax year. Report the amount from line 12 of Form 4562 allocable to a passive activity using the Instructions for Form 8582. If the amount isn't a passive activity deduction, report it on Schedule E (Form 1040), line 28, column (j), after applying the basis and at-risk limitations on losses. See Limitations on Losses, Deductions, and Credits, earlier.

Box 12. Other Deductions

See List of Codes, later.

.This is an Image: caution.gifDeductions reported in box 12 may be limited. See Limitations on Losses, Deductions, and Credits, earlier..

Contributions. Codes A through G.

The corporation will give you a statement that shows charitable contributions subject to the 100%, 60%, 50%, 30%, and 20% adjusted gross income (AGI) limitations.

If the corporation made a property contribution, it will report on an attached statement your share of both the fair market value (FMV) and adjusted basis of the property. Use these amounts to adjust your stock basis. If the corporation made a qualified conservation contribution, it will report the FMV of the underlying property before and after the donation, the type of legal interest contributed, and a description of the conservation purpose furthered by the donation. If the corporation made a contribution of real property located in a registered historic district, it will report any information you will need to take a deduction.

For more details, see Pub. 526, Charitable Contributions, and the Instructions for Schedule A (Form 1040). If your contributions are subject to more than one of the AGI limitations, see Pub. 526.

Charitable contribution deductions aren't taken into account in figuring your passive activity loss for the year. Don't enter them on Form 8582.

Form 8283.

If you received a copy of Form 8283, Noncash Charitable Contributions, from the corporation, attach the copy to your tax return. Use the amount shown on your Schedule K-1, not the amount shown on the Form 8283, to figure your deduction.

Code A. Cash contributions (60%).

Report this amount, subject to the 60% AGI limitation, on Schedule A (Form 1040), line 11.

Code B. Cash contributions (30%).

Report this amount, subject to the 30% AGI limitation, on Schedule A (Form 1040), line 11.

Code C. Noncash contributions (50%).

Report this amount, subject to the 50% AGI limitation, on Schedule A (Form 1040), line 12.

Food inventory contributions.

The corporation will report on an attached statement your share of qualified food inventory contributions. The food inventory contribution isn't included in the amount reported in box 12 using code C. The corporation will also report your share of the corporation's net income from the business activities that made the food inventory contribution(s). Your deduction for food inventory contributions made during 2020 or 2021 can't exceed 25% of your aggregate net income for the tax year from the business activities from which the food inventory contribution was made (including your share of net income from partnership or S corporation businesses that made food inventory contributions). Amounts that exceed the 25% limitation may be carried over for up to 5 years. Report this amount, subject to the 50% AGI limitation, on Schedule A (Form 1040), line 12.

Code D. Noncash contributions (30%).

Report this amount, subject to the 30% AGI limitation, on Schedule A (Form 1040), line 12.

Code E. Capital gain property to a 50% organization (30%).

Report this amount, subject to the 30% AGI limitation, on Schedule A (Form 1040), line 12. See Worksheet 2. Applying the Deduction Limits in Pub. 526.

Code F. Capital gain property (20%).

Report this amount, subject to the 20% AGI limitation, on Schedule A (Form 1040), line 12.

Code G. Contributions (100%).

The corporation will use code G to report the following contributions.

Disaster relief.

The corporation will report your share of qualified cash contributions that were donated for relief efforts in certain disaster areas and made before February 19, 2020. You can elect to deduct 100% of these contributions on Schedule A (Form 1040), line 11, or, if you are not filing Schedule A, on Form 1040 or 1040-SR, line 10b, subject to the $300 limit. If you don’t make this election, add this amount to the cash contributions reported in box 12 using code A and enter the total amount, subject to a 60% AGI limitation, as discussed in the earlier code A instructions.

Other cash contributions made in 2020 or 2021.

The corporation will report your share of qualified cash contributions that were made in 2020 or 2021. You can elect to deduct 100% of these contributions on Schedule A (Form 1040), line 11, or, if you are not filing Schedule A, on Form 1040 or 1040-SR, line 10b, subject to the $300 limit. If you don’t make this election, add this amount to the cash contributions reported in box 12 using code A and enter the total amount, subject to a 60% AGI limitation, as discussed in the earlier code A instructions.

Qualified conservation contributions of property used in agriculture or livestock production.

The corporation will report on an attached statement your share of qualified conservation contributions of property used in agriculture or livestock production. This contribution isn't included in the amount reported in box 12 using code C or G. If you are a farmer or rancher, you qualify for a 100% AGI limitation for this contribution. Otherwise, your deduction for this contribution is subject to a 50% AGI limitation. Report this amount, subject to your applicable limitation, on Schedule A (Form 1040), line 12. See Pub. 526 for more information on qualified conservation contributions.

Code H. Investment interest expense.

Report this amount on Form 4952, line 1.

If the corporation has investment income or other investment expense, it will report your share of these items in box 17 using codes A and B. Include investment income and expenses from other sources to figure how much of your total investment interest is deductible.

For more information on the special provisions that apply to investment interest expense, see Form 4952 and Pub. 550.

Code I. Deductions—Royalty income.

Report deductions allocable to royalties on Schedule E (Form 1040), line 19. For this type of expense, enter "From Schedule K-1 (Form 1120-S)."

These deductions aren't taken into account in figuring your passive activity loss for the year. Don't enter them on Form 8582.

Code J. Section 59(e)(2) expenditures.

The corporation will show on an attached statement the type and the amount of qualified expenditures for which you may make a section 59(e) election. The statement will also identify the property for which the expenditures were paid or incurred. If there is more than one type of expenditure, the amount of each type will also be listed.

If you deduct these expenditures in full in the current year, they are treated as adjustments or tax preference items for purposes of alternative minimum tax. However, you may elect to amortize these expenditures over the number of years in the applicable period rather than deduct the full amount in the current year. If you make this election, these items aren't treated as adjustments or tax preference items.

Under the election, you can deduct circulation expenditures ratably over a 3-year period. Research and experimental expenditures and mining exploration and development costs can be amortized over a 10-year period. Intangible drilling and development costs can be amortized over a 60-month period. The amortization periods begin with the month in which such costs were paid or incurred.

Make the election on Form 4562. If you make the election, report the current year amortization of section 59(e) expenditures from Part VI of Form 4562 on Schedule E (Form 1040), line 28. If you don't make the election, report the section 59(e)(2) expenditures on Schedule E (Form 1040), line 28, and figure the resulting adjustment or tax preference item (see Form 6251, Alternative Minimum Tax—Individuals). Whether you deduct the expenditures or elect to amortize them, report the amount on a separate line in column (i) of line 28 if you materially participated in the activity. If you didn't materially participate, follow the Instructions for Form 8582 to figure how much of the deduction can be reported in column (g).

Code K.

Reserved for future use.

Code L. Deductions—Portfolio (other).

Generally, you should report these amounts on Schedule A (Form 1040), line 16. See the instructions for Schedule A (Form 1040), line 16, for details.

These deductions aren't taken into account in figuring your passive activity loss for the year. Don't enter them on Form 8582.

Code M. Preproductive period expenses.

You may be able to deduct these expenses currently or you may need to capitalize them under section 263A. See Pub. 225, Farmer's Tax Guide, and Regulations section 1.263A-4 for details.

Code N. Commercial revitalization deduction from rental real estate activities.

Follow the Instructions for Form 8582 to figure how much of the deduction can be reported on Schedule E (Form 1040), line 28, column (g).

Code O. Reforestation expense deduction.

The corporation will provide a statement that describes the qualified timber property for these reforestation expenses. The expense deduction is limited to $10,000 ($5,000 if married filing separately) for each qualified timber property, including your share of the corporation's expense and any reforestation expenses you separately paid or incurred during the tax year.

If you didn't materially participate in the activity, use Form 8582 to figure the amount to report on Schedule E (Form 1040), line 28, column (g). If you materially participated in the reforestation activity, report the deduction on Schedule E (Form 1040), line 28, column (i).

Codes P through R.

Reserved for future use.

Code S. Other deductions.

Amounts with this code may include the following.

  • Itemized deductions that Form 1040 or 1040-SR filers report on Schedule A (Form 1040).

  • Soil and water conservation expenditures and endangered species recovery expenditures. See section 175 for limitations on the amount you are allowed to deduct.

  • Expenditures for the removal of architectural and transportation barriers to the elderly and disabled that the corporation elected to treat as a current expense. The deductions are limited by section 190(c) to $15,000 per year from all sources.

  • Interest expense allocated to debt-financed distributions. The manner in which you report such interest expense depends on your use of the distributed debt proceeds. If the proceeds were used in a trade or business activity, report the interest on Schedule E (Form 1040), line 28. In column (a) enter the name of the corporation and "interest expense." If you materially participated in the trade or business activity, enter the interest expense in column (i). If you didn't materially participate in the activity, follow the Instructions for Form 8582 to figure the interest expense you can report in column (g). Material participation is defined earlier under Passive Activity Limitations. If the proceeds were used in an investment activity, report the interest on Form 4952. If the proceeds are used for personal purposes, the interest is generally not deductible.

  • Contributions to a capital construction fund (CCF). The deduction for a CCF investment isn't taken on Schedule E (Form 1040). Instead, you subtract the deduction from the amount that would normally be entered as taxable income on Form 1040 or 1040-SR, line 15. In the margin to the left of line 15, enter "CCF" and the amount of the deduction.

  • Penalty on early withdrawal of savings. Report this amount on Schedule 1 (Form 1040), line 17.

  • Film, television, and live theatrical production expenses. The corporation will provide a statement that describes the film, television, or live theatrical production generating these expenses. If you didn't materially participate in the activity, use Form 8582 to determine the amount that can be reported on Schedule E (Form 1040), line 28, column (g). If you materially participated in the production activity, report the deduction on Schedule E (Form 1040), line 28, column (i).

The corporation will give you a description and the amount of your share for each of these items.

Box 13. Credits

See List of Codes, later.

If you have credits that are passive activity credits to you, you must complete Form 8582-CR in addition to the credit forms identified below. See Passive Activity Limitations, earlier, and the Instructions for Form 8582-CR for details.

.This is an Image: taxtip.gifIn general, shareholders whose only sources for a credit listed on Form 3800, General Business Credit, Part III, are partnerships, S corporations, estates, trusts, and cooperatives, aren't required to complete the applicable credit form or attach it to their return. Instead, they can report the credit amounts reported to them by these pass-through entities directly on Form 3800, Part III, and enter the EIN of the entity in column (b) of Part III. However, when applicable, all shareholders must complete and attach the following credit forms to their return..

  • Form 3468, Investment Credit (Form 3800, Part III, line 1a).

  • Form 8864, Biodiesel and Renewable Diesel Fuels Credit (Form 3800, Part III, line 1l).

.

.This is an Image: taxtip.gifSee the Instructions for Form 3800 for more details..

Codes A, B, C, and D. Low-income housing credit.

If section 42(j)(5) applies, the corporation will report your share of the low-income housing credit using code A or code C, depending on the date the building was placed in service. If section 42(j)(5) doesn't apply, your share of the credit will be reported using code B or code D, depending on the date the building was placed in service. Any allowable low-income housing credit reported using code A or code B is reported on line 4 of Form 8586, Low-Income Housing Credit, or Form 3800, Part III, line 1d (see TIP, earlier). Any allowable low-income housing credit reported using code C or code D is reported on line 11 of Form 8586 or Form 3800, Part III, line 4d (see TIP, earlier).

Keep a separate record of the low-income housing credit from each separate source so that you can correctly figure any recapture of low-income housing credit that may result from the disposition of all or part of your stock in the corporation. For more information on recapture, see the Instructions for Form 8611, Recapture of Low-Income Housing Credit.

Code E. Qualified rehabilitation expenditures (rental real estate).

The corporation will report your share of the qualified rehabilitation expenditures and other information you need to complete Form 3468 related to rental real estate activities using code E. Your share of qualified rehabilitation expenditures from property not related to rental real estate activities will be reported in box 17 using code C. See the Instructions for Form 3468 for details. If the corporation is reporting expenditures from more than one activity, an attached statement will separately identify the expenditures from each activity.

Combine the expenditures (for Form 3468 reporting) from box 13, code E, and from box 17, code C. The expenditures related to rental real estate activities (box 13, code E) are reported on Schedule K-1 separately from other qualified rehabilitation expenditures (box 17, code C) because they are subject to different passive activity limitation rules. See the Instructions for Form 8582-CR for details.

Code F. Other rental real estate credits.

The corporation will identify the type of credit and any other information you need to figure these credits from rental real estate activities (other than the low-income housing credit and qualified rehabilitation expenditures). These credits may be limited by the passive activity limitations. If the credits are from more than one activity, the corporation will identify the credits from each activity on an attached statement. See Passive Activity Limitations, earlier, and the Instructions for Form 8582-CR for details.

Code G. Other rental credits.

The corporation will identify the type of credit and any other information you need to figure these rental credits. These credits may be limited by the passive activity limitations. If the credits are from more than one activity, the corporation will identify the credits from each activity on an attached statement. See Passive Activity Limitations, earlier, and the Instructions for Form 8582-CR for details.

Code H. Undistributed capital gains credit.

Code H represents taxes paid on undistributed capital gains by a regulated investment company or real estate investment trust. Report these taxes on Schedule 3 (Form 1040), line 12a. Reduce the basis of your stock by this tax.

Code I. Biofuel producer credit.

Report this amount on line 3 of Form 6478, Biofuel Producer Credit, or Form 3800, Part III, line 4c (see TIP, earlier).

Code J. Work opportunity credit.

Report this amount on line 3 of Form 5884, Work Opportunity Credit, or Form 3800, Part III, line 4b (see TIP, earlier).

Code K. Disabled access credit.

Report this amount on line 7 of Form 8826, Disabled Access Credit, or Form 3800, Part III, line 1e (see TIP, earlier).

Code L. Empowerment zone employment credit.

Report this amount on line 3 of Form 8844, Empowerment Zone Employment Credit, or Form 3800, Part III, line 3 (see TIP, earlier).

Code M. Credit for increasing research activities.

Report this amount on line 37 of Form 6765, Credit for Increasing Research Activities, or in Part III of Form 3800 (see TIP, earlier) as follows.

  • The S corporation will provide information necessary to determine if it is an eligible small business under section 38(c)(5)(A). If you and the S corporation are eligible small businesses, report the credit on line 4i. For more information, see the Instructions for Form 3800.

  • All others, report the credit on line 1c.

Code N. Credit for employer social security and Medicare taxes.

Report this amount on line 5 of Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips, or Form 3800, Part III, line 4f (see TIP, earlier).

Code O. Backup withholding.

This is your share of the credit for backup withholding on dividends, interest income, and other types of income. Include this amount in the total you enter on Form 1040 or 1040-SR, line 25c, and attach a copy of your Schedule K-1 to your tax return. Instead of attaching a copy of your Schedule K-1 to your tax return, you can include a statement with your return that provides the corporation's name, address, EIN, and backup withholding amount.

Code P. Other credits.

On a statement attached to Schedule K-1, the corporation will identify the type of credit and any other information you need to figure credits other than those reported with codes A through O. Most credits identified by code P will be reported on Form 3800, Part III (see TIP, earlier).

Credits that may be reported with code P include the following.

  • Unused investment credit from the qualifying advanced coal project credit, qualifying gasification project credit, or qualifying advanced energy project credit allocated from cooperatives (Form 3468, line 9).

  • Unused investment credit from the rehabilitation credit or energy credit allocated from cooperatives (Form 3468, line 13).

  • Employee retention credit (Form 5884-A).

  • Orphan drug credit (Form 8820).

  • Enhanced oil recovery credit (Form 8830).

  • Renewable electricity, refined coal, and Indian coal production credit (Form 8835). The corporation will provide a statement showing the allocation of the credit for production during the 4-year period beginning on the date the facility was placed in service and for production after that period.

  • Indian employment credit (Form 8845).

  • Biodiesel and renewable diesel fuels credit. If this credit includes the small agri-biodiesel producer credit, the corporation will provide additional information on an attached statement. If no statement is attached, report this amount on Form 8864, line 9. If a statement is attached, see the instructions for Form 8864, line 9.

  • New markets credit (Form 8874).

  • Credit for small employer pension plan startup costs and auto-enrollment (Form 8881).

  • Credit for employer-provided childcare facilities and services (Form 8882).

  • Low sulfur diesel fuel production credit (Form 8896).

  • Qualified railroad track maintenance credit (Form 8900).

  • Credit for oil and gas production from marginal wells (Form 8904).

  • Distilled spirits credit (Form 8906).

  • Energy efficient home credit (Form 8908).

  • Alternative motor vehicle credit (Form 8910).

  • Alternative fuel vehicle refueling property credit (Form 8911).

  • Qualified zone academy bond credit. Report this amount on Form 8912.

  • Clean renewable energy bond credit. Report this amount on Form 8912.

  • New clean renewable energy bond credit. Report this amount on Form 8912.

  • Qualified energy conservation bond credit. Report this amount on Form 8912.

  • Build America bond credit. Report this amount on Form 8912.

  • Qualified school construction bond credit. Report this amount on Form 8912.

  • Mine rescue team training credit (Form 8923).

  • Credit for employer differential wage payments (Form 8932).

  • Carbon oxide sequestration credit (Form 8933).

  • Qualified plug-in electric drive motor vehicle credit (Form 8936).

  • Qualified two-wheeled plug-in electric vehicle credit (Form 8936).

  • Credit for small employer health insurance premiums (Form 8941).

  • Employer credit for paid family and medical leave (Form 8994).

Box 14. Foreign Transactions

See List of Codes, later.

Codes A through R, U, and V.

Use the information identified by codes A through R, code U, code V, and any attached statements to figure your foreign tax credit.

The amounts used to figure your foreign tax credit or deduction may be limited. See Limitations on Losses, Deductions, and Credits, earlier.

.This is an Image: caution.gifIf you have any qualified dividends, capital gains (including any capital gain distributions), capital losses, net section 1231 gains, or net section 1231 losses, you may have to make certain adjustments to those amounts before taking them into account on Form 1116, Foreign Tax Credit..

For details, see Form 1116 and its separate instructions and Pub. 514, Foreign Tax Credit for Individuals.

Codes S and T. Extraterritorial income exclusion.

  1. Corporation didn't claim the exclusion. If the corporation reports your share of foreign trading gross receipts (code S) and the extraterritorial income exclusion (code T), the corporation wasn't entitled to claim the exclusion because it didn't meet the foreign economic process requirements. You may still qualify for your share of this exclusion if the corporation's foreign trading gross receipts for the tax year were $5 million or less. To qualify for this exclusion, your foreign trading gross receipts from all sources for the tax year must also have been $5 million or less. If you qualify for the exclusion, report the exclusion amount in accordance with the instructions for box 1, 2, or 3, whichever applies. See Form 8873, Extraterritorial Income Exclusion, for details.

  2. Corporation claimed the exclusion. If the corporation reports your share of foreign trading gross receipts but not the amount of the extraterritorial income exclusion, the corporation met the foreign economic process requirements and claimed the exclusion when figuring your share of corporate income. You may also need to know your share of foreign trading gross receipts from this corporation to determine if you met the $5 million or less exception discussed above for purposes of qualifying for an extraterritorial income exclusion from other sources.

.This is an Image: taxtip.gifWhen asked for, the corporation should furnish you a copy of the corporation's Form 8873 if there is a reduction for international boycott operations, illegal bribes, kickbacks, or similar items..

Code U.

Reserved for future use.

Code V. Other foreign transactions.

On a statement attached to Schedule K-1, the corporation will report any other information on foreign transactions that you may need using code V.

Box 15. Alternative Minimum Tax (AMT) Items

See List of Codes, later.

Use the information reported in box 15 (as well as your adjustments and tax preference items from other sources) to prepare your Form 6251, Alternative Minimum Tax—Individuals, or Schedule I (Form 1041), Alternative Minimum Tax—Estates and Trusts.

Code A. Post-1986 depreciation adjustment.

This amount is your share of the corporation's post-1986 depreciation adjustment. If you are an individual shareholder, report this amount on Form 6251, line 2l.

Code B. Adjusted gain or loss.

This amount is your share of the corporation's adjusted gain or loss. If you are an individual shareholder, report this amount on Form 6251, line 2k.

Code C. Depletion (other than oil & gas).

This amount is your share of the corporation's depletion adjustment. If you are an individual shareholder, report this amount on Form 6251, line 2d.

Codes D and E. Oil, gas, & geothermal properties—Gross income and deductions.

The amounts reported on these lines include only the gross income (code D) from, and deductions (code E) allocable to, oil, gas, and geothermal properties included in box 1 of Schedule K-1. The corporation should have attached a statement that shows any income from, or deductions allocable to, such properties that are included in boxes 2 through 12, 16, and 17 of Schedule K-1. Use the amounts reported here and any other reported amounts to help you figure the net amount to enter on Form 6251, line 2t.

Code F. Other AMT items.

Report the information on the statement attached by the corporation on the applicable lines of Form 6251 or Schedule I (Form 1041).

Box 16. Items Affecting Shareholder Basis

See List of Codes, later.

Code A. Tax-exempt interest income.

Report on your return, as an item of information, your share of the tax-exempt interest received or accrued by the corporation during the year. Individual shareholders include this amount on Form 1040 or 1040-SR, line 2a. Generally, you must increase the basis of your stock by this amount.

Code B. Other tax-exempt income.

Generally, you must increase the basis of your stock by the amount shown, but don't include it in income on your tax return.

Code C. Nondeductible expenses.

The nondeductible expenses paid or incurred by the corporation aren't deductible on your tax return. Generally, you must decrease the basis of your stock by this amount.

Code D. Distributions.

Reduce the basis of your stock (as explained earlier) by distributions, not reported on Form 1099-DIV, of property or money. This amount will include any amounts included in income with respect to new clean renewable energy, qualified energy conservation, qualified school construction, build America, or (for bonds issued after October 3, 2008) qualified zone academy bonds. If these distributions exceed the basis of your stock, the excess is treated as capital gain from the sale or exchange of property and is reported on Form 8949 and Schedule D (Form 1040).

Code E. Repayment of loans from shareholders.

If these payments are made on a loan with a reduced basis, the repayments must be allocated in part to a return of your basis in the loan and in part to the receipt of income. See Regulations section 1.1367-2 for information on reduction in basis of a loan and restoration in basis of a loan with a reduced basis. See Rev. Rul. 64-162, 1964-1 (Part 1) C.B. 304, and Rev. Rul. 68-537, 1968-2 C.B. 372, for details.

Box 17. Other Information

See List of Codes, later.

Code A. Investment income.

Report this amount on Form 4952, line 4a.

Code B. Investment expenses.

Report this amount on Form 4952, line 5.

Code C. Qualified rehabilitation expenditures (other than rental real estate).

The corporation will report your share of qualified rehabilitation expenditures and other information you need to complete Form 3468 for property not related to rental real estate activities in box 17 using code C. Your share of qualified rehabilitation expenditures related to rental real estate activities is reported in box 13 using code E. See the Instructions for Form 3468 for details. If the corporation is reporting expenditures from more than one activity, the attached statement will separately identify the expenditures from each activity.

Combine the expenditures (for Form 3468 reporting) from box 13, code E, and from box 17, code C. The expenditures related to rental real estate activities (box 13, code E) are reported on Schedule K-1 separately from other qualified rehabilitation expenditures (box 17, code C) because they are subject to different passive activity limitation rules. See the Instructions for Form 8582-CR for details.

Code D. Basis of energy property.

If the corporation provides an attached statement for code D, use the information on the statement to complete the applicable energy credit on line 12 of Form 3468. See the Instructions for Form 3468 for details.

Codes E and F. Recapture of low-income housing credit.

The corporation will identify by code E your share of any recapture of a low-income housing credit from its investment in partnerships to which the provisions of section 42(j)(5) apply. All other recapture of low-income housing credits will be identified by code F.

Keep a separate record of each type of recapture so that you will be able to correctly figure any credit recapture that may result from the disposition of all or part of your corporate stock. For details, see Form 8611.

Code G. Recapture of investment credit.

The corporation will provide any information you need to figure your recapture tax on Form 4255, Recapture of Investment Credit. See the Form 3468 on which you took the original credit for other information you need to complete Form 4255.

You may also need Form 4255 if your proportionate stock interest in the corporation is reduced by more than one-third after you were allocated part of an investment credit.

Code H. Recapture of other credits.

On a statement attached to Schedule K-1, the corporation will report any information you need to figure the recapture of other credits including the new markets credit, Indian employment credit, credit for employer-provided childcare facilities and services, alternative motor vehicle credit, alternative fuel vehicle refueling property credit, and qualified plug-in electric drive motor vehicle credit.

Code I. Look-back interest—Completed long-term contracts.

The corporation will report any information you need to figure the interest due or to be refunded under the look-back method of section 460(b)(2) on certain long-term contracts. Use Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts, to report any such interest.

Code J. Look-back interest—Income forecast method.

The corporation will report any information you need to figure the interest due or to be refunded under the look-back method of section 167(g)(2) for certain property placed in service after September 13, 1995, and depreciated under the income forecast method. Use Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method, to report any such interest.

Code K. Dispositions of property with section 179 deductions.

The corporation will report your share of gain or loss on the sale, exchange, or other disposition of property for which a section 179 expense deduction was passed through to shareholders with code K. If the corporation passed through a section 179 expense deduction for the property, you must report the gain or loss, if any, and any recapture of the section 179 expense deduction for the property on your income tax return (see the Instructions for Form 4797 for details). The corporation will provide all the following information.

  1. Description of the property.

  2. Date the property was acquired and placed in service.

  3. Date of the sale or other disposition of the property.

  4. Your share of the gross sales price or amount realized.

  5. Your share of the cost or other basis plus the expense of sale.

  6. Your share of the depreciation allowed or allowable.

  7. Your share of the section 179 expense deduction (if any) passed through for the property and the corporation's tax year(s) in which the amount was passed through.

    To figure the depreciation allowed or allowable for Form 4797, line 22, add to the amount from item (6) above the amount of your share of the section 179 expense deduction, reduced by any unused carryover of the deduction for this property. This amount may be different than the amount of section 179 expense you deducted for the property if your interest in the corporation has changed.

  8. If the disposition is due to a casualty or theft, any information you need to complete Form 4684.

  9. If the sale was an installment sale, any information you need to complete Form 6252, Installment Sale Income. The corporation will separately report your share of all payments received for the property in the following tax years. See the Instructions for Form 6252 for details.

Code L. Recapture of section 179 deduction.

The corporation will report your share of any recapture of section 179 expense deduction if business use of any property for which the section 179 expense deduction was passed through to shareholders dropped to 50% or less before the end of the recapture period. If this occurs, the corporation must provide the following information.

  1. Your share of the depreciation allowed or allowable (not including the section 179 expense deduction).

  2. Your share of the section 179 expense deduction (if any) passed through for the property and the corporation's tax year(s) in which the amount was passed through. Reduce this amount by the portion, if any, of your unused (carryover) section 179 expense deduction for this property.

Code M. Section 453(l)(3) information.

The corporation will report any information you need to figure the interest due under section 453(l)(3) with respect to the disposition of certain timeshares and residential lots on the installment method. Report the interest on Schedule 2 (Form 1040), line 8. Check box "c" and enter "453(l)(3)" and the amount of the interest in the space next to that box. See section 453(l)(3) for details on how to figure the interest.

Code N. Section 453A(c) information.

The corporation will report any information you need to figure the interest due under section 453A(c) with respect to certain installment sales. This information shall include the following from each Form 6252 where line 5 is greater than $150,000.

  1. Description of property.

  2. Date acquired.

  3. Date property sold.

  4. Selling price, including mortgages and other debts (not including interest, whether stated or unstated), less mortgages, debts and other liabilities the buyer assumed or took the property subject to.

  5. Gross profit.

  6. Gross profit percentage.

  7. Contract price less (4) above, plus payments received during the year, not including interest, whether stated or unstated.

  8. Payments received in prior years, not including interest whether stated or unstated.

  9. Installment sale income.

  10. Character of the income—capital or ordinary.

  11. Shareholder’s share of the deferred obligation. See computation below.

Deferred obligation computation.

For each Form 6252 where line 5 is greater than $150,000, figure the Schedule K-1 deferred obligation as follows.

  • Line (4) from the list above, less the sum of lines (7) and (8). This equals the Schedule K deferred obligation.

  • Multiply the Schedule K deferred obligation by the shareholder's current year allocation percentage. This equals the shareholder's share of the deferred obligation.

Report the interest on Schedule 2 (Form 1040), line 8. Check box "c" and enter "453A(c)" and the amount of the interest in the space next to that box. See section 453A(c) for details on how to figure the interest.

Code O. Section 1260(b) information.

The corporation will report any information you need to figure the interest due under section 1260(b). If the corporation had gain from certain constructive ownership transactions, your tax liability must be increased by the interest charge on any deferral of gain recognition under section 1260(b). Report the interest on Schedule 2 (Form 1040), line 8. Enter "1260(b)" and the amount of the interest in the space to the left of line 8. See section 1260(b) for details on how to figure the interest.

Code P. Interest allocable to production expenditures.

The corporation will report any information you need relating to interest you are required to capitalize under section 263A for production expenditures. See Regulations sections 1.263A-8 through 1.263A-15 for details.

Code Q. CCF nonqualified withdrawals.

The corporation will report your share of nonqualified withdrawals from a capital construction fund (CCF). These withdrawals are taxed separately from your other gross income at the highest marginal ordinary income or capital gains tax rate. Attach a statement to your federal income tax return to show your computation of both the tax and interest for a nonqualified withdrawal. Include the tax and interest on Schedule 2 (Form 1040), line 10. In the space to the left of line 10, enter the amount of tax and interest and "CCF." See Pub. 595 for details.

Code R. Depletion information—Oil and gas.

This is your share of gross income from the property, share of production for the tax year, and other information needed to figure your depletion deduction for oil and gas wells. The corporation should also allocate to you a proportionate share of the adjusted basis of each corporate oil or gas property. See Pub. 535 for details on how to figure your depletion deduction.

Reduce the basis of your stock by the amount of this deduction up to the extent of your adjusted basis in the property.

Codes S and T.

Reserved for future use.

Code U. Net investment income.

The corporation may use code U to report information you may need to determine your net investment income tax under section 1411, including information regarding income from controlled foreign corporations (CFCs) and passive foreign investment companies (PFICs), the stock of which is owned by the corporation. Any information not provided elsewhere on Schedule K-1 (or an attachment to Schedule K-1) is provided using code U. For CFCs and PFICs that you treat as qualified electing funds (QEFs), the information that is relevant to you will depend on whether you, the corporation, or a subsidiary pass-through entity has made an election under Regulations section 1.1411-10(g) with respect to the CFC or QEF. For example, if the corporation made an election under Regulations section 1.1411-10(g) for a CFC, the stock of which is owned by the corporation, and the relevant income and deduction items derived from that CFC are reported elsewhere on Schedule K-1, you will not need the information provided using code U to complete your Form 8960.

Follow the Instructions for Form 8960 to figure and report your net investment income and adjusted gross income or modified adjusted gross income. See Regulations sections 1.1411-1 through 1.1411-10 for more details.

Code V. Section 199A information.

Generally, you may be allowed a deduction of up to 20% of your net qualified business income (QBI) plus 20% of your qualified REIT dividends, also known as section 199A dividends, and qualified publicly traded partnership (PTP) income from your S corporation. The S corporation will provide the information you need to figure your deduction. You will use one of these two forms to figure your QBI deduction.

  1. Use Form 8995, Qualified Business Income Deduction Simplified Computation, if:

    1. You have QBI, section 199A dividends, or PTP income (defined below),

    2. Your 2020 taxable income before the QBI deduction is equal to or less than $163,300 ($326,600 if married filing jointly), and

    3. You aren’t a patron in a specified agricultural or horticultural cooperative.

  2. Use Form 8995-A, Qualified Business Income Deduction, if you don’t meet all three of these requirements.

QBI pass-through entity reporting information.

Use the information provided to you by your S corporation to complete the appropriate form identified above.

QBI or qualified PTP items subject to shareholder-specific determinations.

The amounts reported to you reflect your pro rata share of items from the S corporation’s trade(s) or business(es), or aggregation(s), and may include items that aren’t includible in your calculation of the QBI deduction. When determining QBI or qualified PTP income, you must include only those items that are qualified items of income, gain, deduction, and loss included or allowed in determining taxable income for the tax year. To determine your QBI or your qualified PTP income amounts and for information on where to report them, see the instructions for Form 8995 or Form 8995-A.

W-2 wages.

The amounts reported reflect your pro rata share of the S corporation’s W-2 wages allocable to the QBI of each qualified trade or business, or aggregation. See the instructions for Form 8995 or Form 8995-A.

Unadjusted basis immediately after acquisition (UBIA) of qualified property.

The amounts reported reflect your pro rata share of the S corporation’s UBIA of qualified property of each qualified trade or business, or aggregation. See the instructions for Form 8995 or Form 8995-A.

Section 199A dividends.

The amount reported reflects your pro rata share of the S corporation’s net section 199A dividends. See the instructions for Form 8995 or Form 8995-A.

Patrons of specified agricultural and horticultural cooperatives.

If the S corporation was a patron of an agricultural or horticultural cooperative (specified cooperative), you must use Form 8995-A to figure your QBI deduction. In addition, you must complete Schedule D (Form 8995-A), Special Rules for Patrons of Agricultural or Horticultural Cooperatives, to determine your patron reduction.

QBI items allocable to qualified payments from specified cooperatives subject to shareholder-specific determinations.

The amounts reported to you reflect your pro rata share of items from the S corporation’s trade(s) or business(es), or aggregation(s), and include items that may not be includible in your calculation of the QBI deduction and patron reduction. When determining QBI items allocable to qualified payments, you must include only qualified items that are included or allowed in determining taxable income for the tax year. To determine your QBI items allocable to qualified payments, see the Instructions for Form 8995-A.

W-2 wages allocable to qualified payments from specified cooperatives.

The amounts reported reflect your pro rata share of the S corporation’s W-2 wages allocable to qualified payments of each qualified trade or business, or aggregation. See the Instructions for Form 8995-A.

Section 199A(g) deduction from specified cooperatives.

The amount reported reflects your pro rata share of the S corporation’s net section 199A(g) deduction. See the Instructions for Form 8995-A.

Codes W through Z.

Reserved for future use.

Code AA. Excess taxable income.

If the S corporation is required to file Form 8990, Limitation on Business Interest Expense Under Section 163(j), it may determine it has excess taxable income. Report this amount of excess taxable income on Form 8990, Schedule B, line 45(c), if you are required to file Form 8990. See the Instructions for Form 8990 for details.

Code AB. Excess business interest income.

If the S corporation is required to file Form 8990, Limitation on Business Interest Expense Under Section 163(j), it may determine it has excess business interest income. Report this amount of excess business interest income on Form 8990, Schedule B, line 45(d), if you are required to file Form 8990. See the Instructions for Form 8990 for details.

Code AC. Gross receipts for section 448(c)

Use the gross receipts amount to figure the business interest expense you can deduct, if applicable. See section 163(j) and the Instructions for Form 8990 for details.

Code AD. Other information.

The corporation will use code AD to report the following to shareholders.

  1. Any information you need to complete a disclosure statement for reportable transactions in which the corporation participates. If the corporation participates in a transaction that must be disclosed on Form 8886, Reportable Transaction Disclosure Statement, both you and the corporation may be required to file Form 8886 for the transaction. The determination of whether you are required to disclose a transaction of the corporation is based on the category(ies) under which the transaction qualifies for disclosure and is determined by you and the corporation. You may have to pay a penalty if you are required to file Form 8886 and don't do so. See the Instructions for Form 8886 for details.

  2. Gross farming and fishing income. If you are an individual shareholder, report this income, as an item of information, on Schedule E (Form 1040), Part V, line 42. Don't report this income elsewhere on Form 1040 or 1040-SR.

    For a shareholder that is an estate or trust, report this income to the beneficiaries, as an item of information, on Schedule K-1 (Form 1041). Don't report it elsewhere on Form 1041.

  3. The amount included in gross income with respect to qualified zone academy bonds issued before October 4, 2008. Income with respect to these qualified zone academy bonds can't be used to increase your stock basis. Because this amount is already included in income elsewhere on Schedule K-1, you must reduce your stock basis by this amount. See Part I, line 13, of the Worksheet for Figuring a Shareholder's Stock and Debt Basis.

  4. The amount included in gross income with respect to clean renewable energy bonds. Income with respect to clean renewable energy bonds can't be used to increase your stock basis. Because this amount is already included in income elsewhere on Schedule K-1, you must reduce your stock basis by this amount. See Part I, line 13, of the Worksheet for Figuring a Shareholder's Stock and Debt Basis.

  5. Qualified investment in qualifying advanced coal project property. Use the amounts the corporation provides you to figure the amounts to report on Form 3468, lines 5a, 5b, and 5c.

  6. Qualified investment in qualifying gasification property. Use the amounts the corporation provides you to figure the amounts to report on Form 3468, lines 6a and 6b.

  7. Qualified investment in qualifying advanced energy project credit property. Use the amounts the corporation provides you to figure the amount to report on Form 3468, line 7.

  8. Inversion gain. The corporation will provide a statement showing the amounts of each type of income or gain that is included in inversion gain. The corporation has included inversion gain in income elsewhere on Schedule K-1. Inversion gain is also reported under code AD because your taxable income and alternative minimum taxable income can't be less than the inversion gain. Also, your inversion gain (a) isn't taken into account in figuring the net operating loss (NOL) for the tax year or the NOL that can be carried over to each tax year, (b) may limit your credits, and (c) is treated as income from sources within the United States for the foreign tax credit. See section 7874 for details.

  9. The corporation will provide your share of section 965(a) inclusions and section 965(c) deductions. Subtract section 965(c) deductions from section 965(a) inclusions, if applicable. Report the net amount on Schedule 1 (Form 1040), line 8. If the corporation had a section 965(a) inclusion, it will attach a copy of the Form 965, including Schedules F and H, to your Schedule K-1. See the Instructions for Forms 1040 and 1040-SR, the Instructions for Form 965, and the Instructions for Form 965-A for details.

  10. If the corporation has not elected to be treated as an entity for purposes of section 951A under Notice 2020-69, it will provide information you need to figure your section 951A income. Use this information to fill out Form 8992 and determine your GILTI amount.

  11. If the corporation has chosen to apply the provisions of Proposed Regulations section 1.958-1(d) for the tax year, it will provide you with information on the CFCs held through the corporation needed to figure your section 951(a) inclusion. Report this amount on your Form 1040, 1040-SR, or relevant income tax return.

  12. Any other information you may need to file your return not shown elsewhere on Schedule K-1.

The corporation should give you a description and the amount of your share for each of these items.

Box 18. More Than One Activity for At-Risk Purposes

When the corporation has more than one activity for at-risk purposes, it will check this box and attach a statement. Use the information in the attached statement to correctly determine your at-risk limitations. For more information, see At-Risk Limitations, earlier.

Box 19. More Than One Activity for Passive Activity Purposes

When the corporation has more than one activity for passive activity purposes, it will check this box and attach a statement. Use the information in the attached statement to correctly determine your passive activity limitations. For more information, see Passive Activity Limitations, earlier.

Shareholder's Instructions for Schedule K-1
(Form 1120-S) - Additional Material

List of Codes

This list identifies the codes used on Schedule K-1 for all shareholders. For detailed reporting and filing information, see the specific line instructions, earlier, and the instructions for your income tax return.

Box 10. Other income (loss)

Code  
A Other portfolio income (loss)
B Involuntary conversions
C Section 1256 contracts & straddles
D Mining exploration costs recapture
E Section 951A income
F Reserved for future use
G Income under subpart F (other than inclusions under section 951A)
H Other income (loss)
 

Box 12. Other deductions

A Cash contributions (60%)
B Cash contributions (30%)
C Noncash contributions (50%)
D Noncash contributions (30%)
E Capital gain property to a 50% organization (30%)
F Capital gain property (20%)
G Contributions (100%)
H Investment interest expense
I Deductions—royalty income
J Section 59(e)(2) expenditures
K Reserved for future use
L Deductions—portfolio (other)
M Preproductive period expenses
N Commercial revitalization deduction from rental real estate activities
O Reforestation expense deduction
P Reserved for future use
Q Reserved for future use
R Reserved for future use
S Other deductions
 

Box 13. Credits

A Low-income housing credit (section 42(j)(5)) from pre-2008 buildings
B Low-income housing credit (other) from pre-2008 buildings
C Low-income housing credit (section 42(j)(5)) from post-2007 buildings
D Low-income housing credit (other) from post-2007 buildings
E Qualified rehabilitation expenditures (rental real estate)
F Other rental real estate credits
G Other rental credits
H Undistributed capital gains credit
I Biofuel producer credit
J Work opportunity credit
K Disabled access credit
L Empowerment zone employment credit
M Credit for increasing research activities
N Credit for employer social security and Medicare taxes
O Backup withholding
P Other credits
 

Box 14. Foreign transactions

A Name of country or U.S. possession
B Gross income from all sources
C Gross income sourced at shareholder level
Foreign gross income sourced at corporate level:
D Section 951A category
E Foreign branch category
F Passive category
G General category
H Other
Deductions allocated and apportioned at shareholder level:
I Interest expense
J Other
Deductions allocated and apportioned at corporate level to foreign source income:
K Section 951A category foreign source income
L Foreign branch category
M Passive category
N General category
O Other
Other information:
P Total foreign taxes paid
Q Total foreign taxes accrued
R Reduction in taxes available for credit
S Foreign trading gross receipts
T Extraterritorial income exclusion
U Reserved for future use
V Other foreign transactions
 

Box 15. Alternative minimum tax (AMT) items

A Post-1986 depreciation adjustment
B Adjusted gain or loss
C Depletion (other than oil & gas)
D Oil, gas, & geothermal—gross income
E Oil, gas, & geothermal—deductions
F Other AMT items
 

Box 16. Items affecting shareholder basis

A Tax-exempt interest income
B Other tax-exempt income
C Nondeductible expenses
D Distributions
E Repayment of loans from shareholders
 

Box 17. Other information

A Investment income
B Investment expenses
C Qualified rehabilitation expenditures (other than rental real estate)
D Basis of energy property
E Recapture of low-income housing credit (section 42(j)(5))
F Recapture of low-income housing credit (other)
G Recapture of investment credit
H Recapture of other credits
I Look-back interest—completed long-term contracts
J Look-back interest—income forecast method
K Dispositions of property with section 179 deductions
L Recapture of section 179 deduction
M Section 453(l)(3) information
N Section 453A(c) information
O Section 1260(b) information
P Interest allocable to production expenditures
Q CCF nonqualified withdrawals
R Depletion information—oil and gas
S Reserved for future use
T Reserved for future use
U Net investment income
V Section 199A information
W Reserved for future use
X Reserved for future use
Y Reserved for future use
Z Reserved for future use
AA Excess taxable income
AB Excess business interest income
AC Gross receipts for section 448(c)
AD Other information