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Excess of Distribution over Basis

I understand that the excess of Distribution over Shareholder Basis in a S Corp is reported on Schedule D of Form 1040 as Capital Gain. What line of Schedule D does this go on? I tried reading the instructions but did not find anything about excess of distribution over shareholder basis. The excess distribution would throw the Shareholder's Basis into negative on the Books, correct? Also, is the excess treated the same (reported on Schedule D as Capital Gain) in a LLC elected as a partnership for tax purposes? Thanks in advance for your help.

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Reply to
Vijay Sharma
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Report on Line 1 or 8, depending if short or long term.

It would if shareholder basis could be negatve, but it can't.

It's sort of part of the religion of tax accounting: "Basis cannot go negative."

And that rule holds for partnerships too.

__ Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH

Reply to
Arthur Kamlet

Thanks for answering my question. I have a follow up question -

Is this true for financial accounting (books) as well?

Say basis on the books is $20K and Distribution comes out to $25K. On the S Corp or LLC's books the g/l entry would be Debit R/E $20K, Credit Cash $25K, what is the remaining debit entry for the $5K then?

Reply to
Vijay Sharma

If you have no imagination, you can create a dull-sounding line entry and call it "Excess of Distribution over Basis" and account for it there. Or do the same thing with a sexier sounding title like "Distribution Gain" which will be guaranteed to confuse almost everyone :-) When you get through with it, Sch K will call for it to be transferred to a 1040 Sch D. __ Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH

Reply to
Arthur Kamlet

Thanks for your response.

Are you talking about the "total distribution" or just the "excess of distribution over basis" being reported on Schedule K? What line of Schedule K (Form 1065)? I was under the impression that this capital gain is a personal (shareholder) one and not a corporate one so Schedules K and K-1s would not be involved just Schedule D of Form 1040? I do realize that the "total distribution" does go on line 19(a) "Distributions of cash and marketable securities" of Schedule K.

Reply to
Vijay Sharma

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