1120-US: Calculating the Loan basis restored line on the Shareholder's Basis Worksheet (FAQ)

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Question

When does the Loan basis restored line calculate on the Shareholder's Basis Worksheet?

Answer

The loan basis restored is calculated on line 10 of the Shareholder's Loan Basis Restored Worksheet. This amount transfers to the Loan basis restored line on the Shareholder's Basis Worksheet. If you want to change the amount shown on the basis worksheet, enter an amount in the Loan basis restored (Force) field in the Loan tab. If you do not want any amount to transfer to the Loan basis restored line on the Shareholder's Basis Worksheet, enter 0 (zero) in this field.

If the shareholder's loan basis was reduced by losses in a prior year, then the loan basis must be restored by any "net increase" in any subsequent tax year before the shareholder's stock basis can be increased. "Net increase" is defined in Regulation 1.1367-2(c) as the amount by which the shareholder's items of income exceeds the items of losses, deductions, noncapital nondeductible expenses, and distributions. Capital contributions and any shareholder deemed dividends are not considered to be a "net increase" when calculating the restoration of loan basis.

Under Regulation 1.1366-2(a)(2), any shareholder losses disallowed by basis is treated as incurred by the corporation in the corporation's first succeeding taxable year, and subsequent taxable years with respect to the shareholder. Therefore, any prior-year suspended losses are included in the calculation for the current-year "net increase."

Related topic: 1120-US: Shareholder basis calculations FAQs

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