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.
Note: If 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: