1040-US: Disposing of interests in partnerships or S corporations when section 1411(c)(4)(A) applies

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Question

How should I enter a disposition of interests in partnerships or S corporations to which section 1411(c)(4)(A) applies for net investment income tax?

Answer

For the disposition of an active interest in a partnership or S corporation as described in section 1411(c)(4)(A), the gain or loss is taken into account for net investment income only to the extent of the net gain that would be taken into account if all the property of the partnership or S corporation were sold for fair market value immediately before the disposition of the interest, per Regulations section 1.1411-7.

A current year disposition of a partnership interest or S corporation stock is entered on Screen B&D (Income folder), Schedule for detail, with Business entered in the Type column and the Form and Unit selected. A current year installment sale is entered on Screen K1Sale in the K1 folder. UltraTax CS defaults to excluding from net investment income all gain or loss associated with an activity to which net investment income tax does not apply. If the transaction is a disposition of interest in the partnership or S corporation, enter the details of the disposition in the statement dialog on the field Adjustment from disposition of partnership interest or S corporation stock on Screen ACA Tax in the Taxes folder. UltraTax CS will include this information in the required statement for Form 8960. The gain or loss will appear as an excluded item in the Form 8960 – Net Investment Income Worksheet 1, Form 8960, Line 5b, Net gain or loss from disposition of property not subject to net investment income tax and will also be included as a Disposition of interest. UltraTax CS will then produce the Form 8960, Line 5c, Adjustment from disposition of partnership interest or S corporation stock worksheet on Form 8960 – Net Investment Income Worksheet 2 and enter the adjustment amount on Form 8960 line 5c.

UltraTax CS defaults to including in net investment income all gain on installment sales from Screen InstPY in the PerSale folder. If an installment sale represents a prior year disposition of an active interest in a partnership or S corporation the gain may need to be adjusted by the application of Regulations section 1.1411-7. Enter the details of the disposition in the statement dialog for the Adjustment from disposition of partnership interest or S corporation stock field on Screen ACA Tax and indicate that it refers to an installment sale by entering the year in the Installment Sale First Reported column. UltraTax CS will then produce the Form 8960, Line 5c, Adjustment from disposition of partnership interest or S corporation stock worksheet on Form 8960 – Net Investment Income Worksheet 2 and enter the adjustment amount on Form 8960 line 5c.

Related topic: Form 8960 - Net Investment Income Tax FAQs (1040)

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