1120-US: Schedule M-1 adjustment for Form 4797 being generated for the sale of section 179 assets (FAQ)

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Question

Why is a Schedule M-1 adjustment for Form 4797 being generated for the sale of section 179 assets?

Answer

Per the Form 4797 instructions, S Corporations that dispose of property for which a section 179 expense deduction was previously passed through to the shareholder, do not complete Form 4797, 4684, 6252, or 8824 with respect to these types of dispositions. The gain or loss on disposal of section 179 assets is not a part of the Schedule K, Income (loss) calculation, but the gain or loss is included in the S Corporation's book income or loss.

Since the gain or loss on the disposal of a section 179 asset is not included in the taxable income of the S Corporation, but is included in the corporation's book income, UltraTax/1120 creates a Schedule M-1 adjustment equal to the entire amount of the book gain or loss. If you do not want this Schedule M-1 adjustment to appear, enter the amount of the gain or loss reported on the tax return in the 4797 gain (loss) field in Screen Ms and adjust the Net income (loss) per books field as necessary.

Related topic: 1120-US: Form 1120S - common FAQs

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