1120-S simple question on basis

[nwtaxlady]

I am trying to track basis for a client that is 50% of S corp. The K-1's had income all these years and no adjustments etc. just simple K-1's. Then in 2020 had a loss and used up all his stock basis AND debt basis of $2,530 and then had a loss carryover of $5,607. Then in 2021 K-1 had income of $23,142. The loan amount has remained the same all these years. So does the debt basis get restored first?

Here is my Calculation. For 2021 income of $23,142 less Prior year loss of 5,607 and less debt restored 2,530 = Then Stock basis would be $15,005 And then debt basis= 2,530 ?

Is this correct if there is no other figures on the K-1. TIA

[nwtaxlady]

Out of 24 views.... NOBODY has a response?? Doesn't anyone track basis these days??

[jmcdtax]

Yes, completing 7203, I agree.

[nwtaxlady]

Yes, completing 7203, I agree.

Does this mean you do agree with my numbers for the Stock Basis and Debt Basis?

Thanks for taking the time to answer!

[DoubleO]

What is debt basis coming from and why is it staying the same if there are profits to pay the debt?

[terryats]

here are the IRS ordering rules. See link. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.irs.gov/pub/foia/sco_c_53_04_02_02_05.pdf

Adjustments to Debt Basis Analysis Resources Basis Restoration Ordering Rules As previously discussed, debt basis and stock basis are both reduced by losses and deductions. Additionally, stock and debt basis are increased, or restored, by the same income items. Therefore, it is critical to understand the order in which increases and decreases take place. Stock basis is decreased first and then debt basis is decreased. However, when basis is increased, debt basis is restored first and then stock basis is increased. Net Increase Rule The purpose of the net increase rule is to allow current year earnings to be distributed tax free, or current year losses to be deductible, before debt basis is restored. Therefore, once debt basis has been reduced, it can ONLY be restored to the extent that the items that increase stock basis (income, tax-exempt income, excess depletion, etc.) exceed the items that decrease stock basis (losses, deductions, non-deductibles, non-dividend distributions, etc.), i.e. “net increase”. The net increase restores debt basis up to its current loan balance (face amount) before increasing stock basis.

[nwtaxlady]

What is debt basis coming from and why is it staying the same if there are profits to pay the debt?

I meant to say that the LOAN remained the same beginning and ending of each year was the same amount.

[nwtaxlady]

here are the IRS ordering rules. See link. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.irs.gov/pub/foia/sco_c_53_04_02_02_05.pdf

Adjustments to Debt Basis Analysis Resources Basis Restoration Ordering Rules As previously discussed, debt basis and stock basis are both reduced by losses and deductions. Additionally, stock and debt basis are increased, or restored, by the same income items. Therefore, it is critical to understand the order in which increases and decreases take place. Stock basis is decreased first and then debt basis is decreased. However, when basis is increased, debt basis is restored first and then stock basis is increased. Net Increase Rule The purpose of the net increase rule is to allow current year earnings to be distributed tax free, or current year losses to be deductible, before debt basis is restored. Therefore, once debt basis has been reduced, it can ONLY be restored to the extent that the items that increase stock basis (income, tax-exempt income, excess depletion, etc.) exceed the items that decrease stock basis (losses, deductions, non-deductibles, non-dividend distributions, etc.), i.e. “net increase”. The net increase restores debt basis up to its current loan balance (face amount) before increasing stock basis.

Thank you! So then based on my figures and nothing else was on the K-1's, then do you agree with my calculations, my figures?
thank you!

[jmcdtax]

Yes, I do as I did before. Fill out 7203 and you'll come to the same conclusion.