Page 156 - BusinessStructures & Forms

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
and B’s beginning of tax year number of shares is 50, while C’s line 17 of Form 4797 that is attributable to the sale, exchange, or
is 0, and the end of tax year number of shares for A and B is 40, involuntary conversion of an asset used in a rental activity other
while C’s is 20. than a rental real estate activity.
Item I Enter on line 3b the deductible expenses of the activity.
Attach a statement of these expenses to Form 1120-S.
Report the amount of debt owed by the S corporation directly to
the shareholder as of the beginning and end of the S Enter on line 3c the net income (loss).
corporation’s tax year. Generally, the amount reported on
Schedule L, line 19, Loans from shareholder, should reconcile to See Rental Activities, earlier, and Pub. 925, for more
the sum of all amounts reported on Schedules K‐1. Do not information on rental activities.
include amounts for which the shareholder is a co‐borrower or Schedule K-1. Enter in box 3 of Schedule K-1 each
guarantor of corporate level debt. Also do not include any shareholder's pro rata share of other net rental income (loss)
intercompany debt. reported on line 3c of Schedule K. Identify on statements
attached to Schedule K-1 any additional information the
Specific Instructions (Schedules K shareholder needs to correctly apply the passive activity
and K-1, Part III) limitations. For example, if the corporation has more than one
rental activity reported in box 3, identify the amount from each
activity. See Passive Activity Reporting Requirements, earlier.
Income (Loss)
Reminder. Before entering income items on Schedule K or K-1, Portfolio Income
reduce each item of passive investment income (within the
meaning of section 1362(d)(3)(C)) by its proportionate share of See Portfolio Income, earlier, for a definition of portfolio income.
the net passive income tax (Form 1120-S, page 1, line 22a). Don't reduce portfolio income by deductions allocated to it.
Report such deductions (other than interest expense) on
Line 1. Ordinary Business Income (Loss) line 12d of Schedule K. Report each shareholder's pro rata
share of deductions in box 12 of Schedule K-1 using codes I or
Enter the amount from Form 1120-S, page 1, line 21. Enter the L.
income (loss) without reference to the shareholder's:
• Basis in the stock of the corporation and in any indebtedness Interest expense allocable to portfolio income is generally
of the corporation to the shareholders (section 1366(d)), investment interest expense reported on line 12b of Schedule K.
• At-risk limitations, and Report each shareholder's pro rata share of interest expense
• Passive activity limitations. allocable to portfolio income in box 12 of Schedule K-1 using
These limitations, if applicable, are determined at the code H.
shareholder level.
Line 4. Interest Income
Line 1 shouldn't include rental activity income (loss) or
portfolio income (loss). Enter only taxable portfolio interest on this line. Taxable interest
Schedule K-1. Enter each shareholder's pro rata share of is interest from all sources except interest exempt from tax and
interest on tax-free covenant bonds.
ordinary business income (loss) in box 1 of Schedule K-1.
Identify on statements attached to Schedule K-1 any additional Schedule K-1. Enter each shareholder's pro rata share of
information the shareholder needs to correctly apply the passive interest income in box 4 of Schedule K-1.
activity limitations. For example, if the corporation has more than
one trade or business activity, identify the amount from each Line 5a. Ordinary Dividends
activity. See Passive Activity Reporting Requirements, earlier.
Enter only taxable ordinary dividends on line 5a, including any
Line 2. Net Rental Real Estate Income (Loss) qualified dividends reported on line 5b. An S corporation that
directly or indirectly (through pass-through entities only) owns
Enter the net income (loss) from rental real estate activities of (within the meaning of section 958(a)) stock in a foreign
the corporation from Form 8825. Attach the form to Form corporation may have income inclusions (for example, subpart F
1120-S. income and GILTI inclusions) with respect to the foreign
Schedule K-1. Enter each shareholder's pro rata share of net corporation and, as a result, previously taxed earnings and
profits (PTEP) in annual PTEP accounts with respect to the
rental real estate income (loss) in box 2 of Schedule K-1. Identify foreign corporation. Do not include ordinary dividends or
on statements attached to Schedule K-1 any additional qualified dividends received from a foreign corporation to the
information the shareholder needs to correctly apply the passive extent that they are attributable to PTEP in annual PTEP
activity limitations. For example, if the corporation has more than accounts of the S corporation with respect to the foreign
one rental real estate activity, identify the amount from each corporation. See Notice 2019-01. The amount by which ordinary
activity. Also, for example, identify certain items from any rental dividends and qualified dividends are attributable to PTEP in
real estate activities that may be subject to the annual PTEP accounts of a person other than the S corporation
recharacterization rules. See Passive Activity Reporting (for example, a shareholder) is not relevant for purposes of
Requirements, earlier. determining the ordinary dividends to be entered on line 5a.

Line 3. Other Net Rental Income (Loss) Note. An annual PTEP account of the S corporation is different
than the shareholders’ undistributed taxable income previously
Enter on line 3a gross income from rental activities other than taxed account, as discussed in the instructions to Schedule M-2,
those reported on Form 8825. Include on line 3a gain (loss) from column (b).

-26- Instructions for Form 1120-S (2022)