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10097: 1040 - K1P or K1S - Negative Basis


1040 Individual

Why can’t I have a negative amount for basis for a K-1? 

The IRS does not allow a negative basis.

Partner or shareholder basis may be decreased (but not below zero), for the following:

Partner Basis (1065):

  • Money and adjusted basis of property distributed.
  • Losses.
  • Nondeductible expenses.
  • Depletion for oil and gas.

NoteIf a partner receives more in distributions than the partner has in basis, the result may be taxable. See Related Links below for details. 

Shareholder Stock Basis - Form 7203 (1120-S):

  • Losses.
  • Separately stated items.
  • Nondeductible expenses.
  • Non-dividend distributions.
  • Depletion for oil and gas.

Notes:

  • If a shareholder receives more in distributions than the shareholder has in basis, the result may be taxable. See Related Links below for details. 
  • Non-deductible expenses only get carried forward if the taxpayer has made the irrevocable election to take losses and deductions before non-deductible expenses. To indicate this in Drake Tax, checking the box on the K1S screen > Basis (7203) tab > E checkbox.
    • In prior years, this is located on the K1S screen > Basis Wkst (cont.) tab > Elect to take losses and deductions before non-deductible items).
    • Per the field help: "Mark this box to make the election to decrease basis by losses and deductions before nondeductible items. A shareholder may elect to decrease his or her basis for a share of separately computed items of loss, and non-separately computed loss before reducing the basis for nondeductible, noncapital expenses, and the oil and gas depletion deduction. If the shareholder makes the election, to the extent the nondeductible, non-capital expenses, and the oil and gas depletion deduction exceed the shareholder's basis, these items reduce basis in the following tax year."

For more information, see:


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