Schedule K-1 (Form 1120-S) - Income Section (Boxes 1- 11)

Box 1 - Ordinary Business Income (Loss)

Ordinary business income (loss) reported in Box 1 of the K-1 is entered as either Non-Passive Income/Loss or as Passive Income/Loss. The determining factor in whether the income should be reported as Passive or Non-Passive depends on whether the taxpayer materially participated in the business activities. See: Publication 925 - Passive Activity and At-Risk Rules.

• If the income (loss) is entered as Non-Passive Income/Loss it will carry to Schedule E (Form 1040), Line 28 column (k) for income or Line 28 column (i) for loss.
• If the income (loss) is entered as Passive Income/Loss, it will carry to Worksheet 3 of Form 8582 – Passive Activity Loss Limitations where any losses may be limited, and any income may be offset by other passive losses that the taxpayer has. If the loss is allowed, it will then flow through to Schedule E (Form 1040).

Note: In addition to being the entry field for Ordinary Income (Loss) from Trade or Business Activities that is reported on Box 1 of the K-1, this field is used to make other entries that are reported to the taxpayer on a Schedule K-1 (Form 1120-S) which should flow through to Schedule E, Line 28 or to Worksheet 3 of Form 8582. 

Box 2 - Net Rental Real Estate Income (Loss)

Net income (loss) from rental activities is reported Box 2 of the K-1. Whether the amount in Box 2 is considered Active or Non-Active is dependent on whether the taxpayer is an active participant in the rental activity.

• A taxpayer is not considered to actively participate in a rental real estate activity if, at any time during the tax year, the taxpayer's interest (including their spouse's interest) in the activity was less than 10% (by value) of all interests in the activity. 
• If the income (loss) is entered as a Material Participation Income/Loss (in the Entity Information section) it will automatically carry to Schedule E (Form 1040), line 28, column (k) for income or Line 28, column (I) for any loss.
• If the income (loss) is entered as Non-Active Income/Loss, it will automatically be carried to Worksheet 3 of Form 8582 and is subject to the passive income limitations. Any Non-Active Income will flow through Form 8952 to Schedule E (Form 1040), unless a passive loss carryover or a passive loss from another activity exists, which may otherwise reduce or eliminate this income. Non-Active Loss will not flow through Form 8582 to Schedule E (Form 1040). Instead, apply any Non-Active Loss against passive income in the current or future tax years.
• If the income (loss) is entered as Active Income/Loss, it will automatically be carried to the Worksheet 1 of Form 8582 and is subject to the Rental Real Estate Activities with Active Participation Special Allowance. In this instance, the taxpayer may, subject to certain income restrictions, be permitted to deduct up to $25,000 of the loss. Instructions for Form 8582 - Passive Activity Loss Limitations.

Box 3 - Other Net Rental Income (Loss)

The amount reported in Box 3 is a passive activity amount. The amount entered will automatically be carried to the Worksheet 3 of Form 8582 and is subject to the passive income limitations. Any income will flow to Schedule E (Form 1040), unless a passive loss carryover or a passive loss from another activity exists, which may otherwise reduce or eliminate this income. 

Box 4 - Interest Income

Amounts entered on this line will automatically flow to Line 2b of Form 1040.

Box 5A - Ordinary Dividends

Amounts entered on this line will automatically flow to Line 3b of Form 1040.

Box 5B - Qualified Dividends

Amounts entered on this line will automatically flow to Line 3a of Form 1040.

Box 6 - Royalties

Amounts entered on this line will automatically flow to Schedule E (Form 1040), Line 4.

Box 7 - Net Short-Term Capital Gain/Loss

Amounts entered on this line will automatically flow to Schedule D (Form 1040), Capital Gains and Losses,  Line 5.

Box 8A - Net Long-Term Capital Gain/Loss

Amounts entered on this line will automatically flow to Schedule D (Form 1040), net long-term capital gain (loss),  Line 12.

Box 8B - Collectible (28%) Rate Gain/Loss

Amounts entered on this line will automatically flow to a 28% Rate Gain Worksheet and then to Schedule D (Form 1040), Line 18.

Box 8C - Unrecaptured Section 1250 Gain

Amounts entered on this line will automatically flow to an Unrecaptured Section 1250 Gain Worksheet before going to Schedule D (Form 1040), Line 19.

Box 9 - Net Gain/Loss under Section 1231

Enter the amount reported in Box 9 of the K-1. There is a checkbox asking if Section 1231 Gain (loss) is passive. How this question is answered will affect the treatment that the Gain/Loss will receive. 

• If the amount is a gain (or a non-passive loss), it will automatically be reported on line 2, column (g), of Form 4797, Sales of Business Property (box not checked)
•  If the amount is a loss from a passive activity, the loss will automatically be carried to the Worksheet 3 of Form 8582 and is subject to the passive income limitations (box checked). 

Box 10 - Other Income (Loss)

Code F - Inclusions of subpart F income

The corporation will report the taxpayer's share of 965(a) inclusions in Box 10, Code E. Any amount reported should be reduced by the amount reported in Box 12, Code K. 

Code G - Section 951(a)(1)(B) inclusions

The corporation will report the taxpayer's share of Subpart F inclusions 965(a) inclusions. 

Box 10- All other codes

The following boxes are not supported in the program. Check the instructions to see if they need to be reported elsewhere. 

Box 11 - Section 179 Deduction

Section 179 Limitations are not calculated by the System, enter ONLY Section 179 Expenses within the Limitations.  

The Section 179 Deduction that is allowed can affect the Qualified Business Income (Section 199A income) and the amount reported by the corporation as Qualified Business Income (Loss) on Box 17, Code V may need to be adjusted to reflect any allowed Section 179 Deduction.