Interest expense limitation at the S/H/Partner Level

Technical topics regarding tax preparation.
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Hi,

I have a client that funded an S-Corporation stock acquisition with debt. All of the assets of the S-Corp are trade or business.

The S-Corporation holds real estate and is subject to 163(J), but does not have any excess business interest expense limitations at the S-Corporation level. The taxable income of the S-Corp is negative, but with the add-back of depreciation, amortization, and interest, there is enough ATI to not limit the interest expense.

I know that I need to calculate the 163(J) business interest limitation again at my client's level (S/H level). Again, the S-corp had negative taxable income, but with add-backs, there is no limitation. The amount of S-corporation income allocated to our client is negative, so this leads me to believe that there might be a limitation on the amount of interest expense deductible on the note used to acquire the stock.

Does anyone have any guidance on the calculation? Do I need the breakout of the amount of allocated depreciation, amortization, and interest expense that is included in the S-Corporation Schedule K-1, box 2 that my client receives?

Thanks in advance!
 

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