IRS Form 7203 - S Corporation Loss Limitations on Stock Basis

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IRS Form 7203 is required with a taxpayer's Form 1040 tax return if the shareholder has one of the following during the tax year:
1. The shareholder is claiming a deduction for their share of losses from the S corporation (this includes prior year losses);
2. The shareholder received a non-dividend distribution from the S corporation;
3. The shareholder disposed of stock (complete or partial disposition) during the tax year; or
4. The shareholder received a loan repayment from the S corporation.

My recommendation is to always file Form 7203 to track stock & debt basis, even under circumstances where the form was not required.

In this example, we cover a situation where a shareholder is allocated losses that exceed his stock basis. The basis limitations require a carryforward of unused ordinary losses.

We cover how to calculate shareholder stock basis on Form 7203, and we review the stock & debt basis worksheets included with the shareholder's Schedule K-1 package provided by the S corporation.

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DISCLAIMER: The information provided in this video may contain information about tax, financial, and legal topics. Such materials are for informational purposes only and may not reflect the most current developments. These informational materials are not intended and should not be taken as tax, financial, or legal advice. You should contact an advisor to discuss your specific facts and circumstances. Self-help services may not be permitted in all states or jurisdictions. The use of these materials does not create an attorney-client or confidential relationship. This video does not include information about every topic or issue related to these informational materials.

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[albertliu]

Super helpful video! Thank you Jason for the step-by-step instruction!

[johnatlas]

This is great. Didn't know about stock blocks

[Isa-bella-]

Hi, thank you for the video. If the sharefolder never track their AB, but they said they have basic, how do i handle distributions?...are they taxable if over AB.?

[artworldnet]

Thanks Jason. Just a quick question: for Part III (SH Allowable Loss and Deduction Items), do you add columns (a) and (b) to the deduct column (c) to get column (d)? And what would be the carryover amount?

[hasheru]

Thank you for the video. I have a question though. Repayment of (open) loan to shareholder resulted to a reportable gain (line 34 of form 7203). Is it reported to K-1 line 16? If not, how is that gain flow to the personal returns.

[zqogxfg]

If in the following year, business reports loss, and there is a small (<$1K) distribution on line 6, with basis of 0, is the distribution all capital gain? Or can the prior year carryover be applied and be reduced by the distribution?