“I have an S-Corp where I'm electing Section 179 for about $4,000 in equipment. I listed that amount on line 14 of my 1120S for Depreciation not claimed on Schedule A or elsewhere, that in turn added to my total Deductions on line 20.”-->You do not report any section 179 expense deduction on 1120s line 14. The amount is NOT deducted by the S corp. Instead, it is passed through to the shareholders in box 11 of Schedule K-1.For reference, for passthrough entities,like your S corp, recapture of the Sec. 179 expense deduction information is required when the entity disposes of an asset for which the entity passed through Sec. 179 expense to its owners on a Schedule K-1 of 1120S. Recapture of Sec. 179 expense deduction information is also required when there is a decline in business use that triggers recapture ;if the equipment for which a Sec. 179 expense deduction was claimed ceases to be used more than 50% in business at any time before the end of the property's recovery period, partial recapture of the deduction is required.
What do I put on the K-1 for me and the other shareholder? I'm a little confused by what I'm reading, which sounds as if the Sec 179 deduction goes on the shareholders' personal returns, but why wouldn't it be a part of the business's deductions - it all flows through anyway. Or am I just overcomplicating this (and perhaps not understanding the K1 correctly)?”-->As said above, Section 179 deductions, as separately stated items, must be reported on Schedule K-1 Box 11. Sec 179 expense is depreciation. S-Corp can use a Section 179 depreciation as an expense, But on the tax return, the entity must have taxable income before the 179 expense in order for the entity to pass the 179 through to the s/h's. If not, the 179 is treated as an M-1 adjustment, to be utilized in a later year. On Sch K line 11, as a summary schedule of all shareholders' deductions, sec 179 expenses is reported. The S corporation can't claimor maybe that's can't pass through Section 179 greater than the corporation's net active business income (which allows - I think - an addback of the owner's compensation deduction. And the shareholder can't claim more Section 179 than his net active business income (which includes active business income other than from the S corporation).Also, section 179 deduction are NOT AMT add backs. I other words,Section 179 deductions are fully deductible for AMT purposes.
Last edited by Wnhough : 07-16-2011 at 04:12 PM.