1120-US: Section 179 expense not allocated to a shareholder who is an estate or trust (FAQ)

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Question

Why is the Section 179 expense not allocated to a shareholder who is an estate or trust?

Answer

Each individual shareholder's pro rata share of Section 179 expense is reported on Schedule K-1, Box 11. However, per Form 1120S instructions for Box 11: "Do not complete Box 11 of Schedule K-1 for any shareholder that is an estate or trust." The Section 179 expense for the remaining shareholders is not adjusted for the amount that would have been allocated to the estate or trust.

Per IRC Regulation 1.179-1(f)(3), the S Corporation's basis in Section 179 property shall not be reduced to reflect any portion of the Section 179 expense that is allocable to the trust or estate. The S Corporation can claim a depreciation deduction for the amount of Section 179 that would have been allocated to the trust or estate shareholder.

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

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