Drake Tax – Form 7203: Shareholder Basis – EF Message 5486
Article #: 17439
Last Updated: November 06, 2024
Form 7203 replaced the shareholder's basis worksheet (Worksheet for Figuring a Shareholder’s Stock and Debt Basis) in the 1040 return.
Important Form 7203 is only generated in a 1040 return, not in an 1120-S return. Drake Software will continue to generate the basis worksheets Wks SBAS in the 1120-S return (if enabled under Setup > Options > Form & Schedule Options) to provide required information to the shareholder, however, the Form 7203 Instructions indicate that the basis should be tracked by the shareholder at the individual level:
"You are responsible for keeping the information needed to figure the basis of your stock in the corporation. Schedule K-1 (Form 1120-S) provides information to help you figure your stock basis at the end of each corporate tax year."
Form 7203 is used to figure potential limitations of a shareholder's share of the S corporation's deductions, credits, and other items that can be deducted on their individual return. This form must be filed if the shareholder:
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Is claiming a deduction for their share of an aggregate loss from an S corporation (including an aggregate loss not allowed last year because of basis limitations),
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Received a non-dividend distribution from an S corporation,
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Disposed of stock in an S corporation (whether or not gain is recognized)
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Received a loan repayment from an S corporation
Information for Form 7203 is entered on the Basis Wkst and Basis Wkst (cont) tabs of the K1S screen. These entries automatically generate Form 7203 in View/Print mode. Entries are required when a loss is being reported a distribution was received, stock was disposed of, or loan repayment was received. EF Message 5486 generates if you have not entered the required basis information.