1120-S Schedule K- Instructions for Form 1120-S Schedule K-1

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2021

Department of the Treasury
Internal Revenue Service

Shareholder's Instructions
for Schedule K-1
(Form 1120-S)

DRAFT AS OF
November 18, 2021
Shareholder's Share of Income, Deductions, Credits, etc.
(For Shareholder's Use Only)
Contents

Section references are to the Internal
Revenue Code unless otherwise noted.

Contents

Future Developments . . . . . . . .
General Instructions . . . . . . . . .
Purpose of Schedule K-1 . .
Inconsistent Treatment of
Items . . . . . . . . . . . . .
Errors . . . . . . . . . . . . . . .
Decedent's Schedule K-1 . .
Sale of S Corporation Stock .
International Boycotts . . . . .
Elections . . . . . . . . . . . . .
Additional Information . . . .
Limitations on Losses,
Deductions, and Credits .
Basis Limitations . . . . .
At-Risk Limitations . . . .
Passive Activity
Limitations . . . . . . .
Excess Business Loss
Limitations . . . . . . .
Specific Instructions . . . . . . . . .
Box 1. Ordinary Business
Income (Loss) . . . . . . .
Box 2. Net Rental Real
Estate Income (Loss) . . .
Box 3. Other Net Rental
Income (Loss) . . . . . . .
Box 4. Interest Income . . . .
Boxes 5a and 5b. Dividends
Box 6. Royalties . . . . . . . .
Box 7. Net Short-Term
Capital Gain (Loss) . . . .
Box 8a. Net Long-Term
Capital Gain (Loss) . . . .
Box 9. Net Section 1231
Gain (Loss) . . . . . . . . .
Box 10. Other Income (Loss)
Box 11. Section 179
Deduction . . . . . . . . . .
Box 12. Other Deductions . .
Box 13. Credits . . . . . . . . .
Box 14. International
Transactions . . . . . . . .
Box 15. AMT Items . . . . . .
Box 16. Items Affecting
Shareholder Basis . . . . .
Box 17. Other Information . .
Box 18. More Than One
Activity for At-Risk
Purposes . . . . . . . . . . .

Oct 28, 2021

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Box 19. More Than One
Activity for Passive
Activity Purposes . . . . . . . . 17
List of Codes . . . . . . . . . . . . . . . . 18

Future Developments

For the latest information about
developments related to
Schedule K-1 (Form 1120-S) and its
instructions, such as legislation
enacted after they were published, go
to IRS.gov/Form1120S.

What’s New
Schedule K-3. New Schedule K-3
replaces prior box 14 and certain
amounts formerly reported on box 17
of Schedule K-1. The new schedule is
designed to provide greater clarity for
shareholders on how to figure their
U.S. income tax liability with respect
to items of international tax relevance,
including claiming deductions and
credits.
Form 7203. Form 7203 and its
separate instructions are developed
to replace the Worksheet for Figuring
a Shareholder's Stock and Debt
Basis. See the Instructions for Form
7203 for details.
New item added to Part I. Item D is
added for the corporation's total
number of shares for the beginning
and end of the tax year.

General Instructions
Purpose of Schedule K-1

The corporation uses Schedule K-1 to
report your share of the corporation's
income, deductions, credits, and other
items. Keep it for your records. Don't
file it with your tax return unless
backup withholding is reported in
box 13 using code O. (See the
instructions for Code O. Backup
withholding, later.) The corporation
Cat. No. 11521O

files a copy of Schedule K-1 with the
IRS.

For your protection, Schedule K-1
may show only the last four digits of
your identifying number (social
security number (SSN), employer
identification number (EIN), or
individual taxpayer identification
number (ITIN)). However, the
corporation has reported your
complete identifying number to the
IRS.

You may be liable for tax on your
share of the corporation's income,
whether or not distributed. Include
your share on your tax return if a
return is required. Use these
instructions to help you report the
items shown on Schedule K-1 on your
tax return.
Your share of S corporation income
isn't self-employment income and it
isn't subject to self-employment tax.
The amount of loss and
deduction you may claim on
CAUTION your tax return may be less
than the amount reported on
Schedule K-1. It is the shareholder's
responsibility to consider and apply
any applicable limitations. See
Limitations on Losses, Deductions,
and Credits, later, for more
information.

!

Schedule K-1 doesn't show actual
dividend distributions the corporation
made to you. The corporation must
report such amounts totaling $10 or
more for the calendar year on Form
1099-DIV, Dividends and
Distributions.

Inconsistent Treatment of
Items

Generally, you must report corporate
items shown on your Schedule K-1
(and any attached statements) the

same way that the corporation treated
the items on its return.
If the treatment on your original or
amended return is inconsistent with
the corporation's treatment, or if the
corporation hasn't filed a return, file
Form 8082, Notice of Inconsistent
Treatment or Administrative
Adjustment Request (AAR), with your
original or amended return to identify
and explain any inconsistency (or to
note that a corporate return hasn't
been filed).

of a shareholder, see Pub. 559,
Survivors, Executors, and
Administrators.

Sale of S Corporation
Stock

Gain or loss from the disposition of
your S corporation stock may be net
investment income under section
1411 and could be subject to the net
investment income tax. See Form
8960, Net Investment Income
Tax—Individuals, Estates, and Trusts,
and its instructions for information
about how to figure and report the tax.

Statements Required of
Shareholders of Certain S
Corporations Electing To
Be Treated as an Entity
Under Notice 2020-69

If the corporation and all of its
shareholders elect for the corporation
to be treated as an entity for purposes
of section 951A under Notice
2020-69, 2020-39 I.R.B. 604 for tax
years of the corporation ending before
September 1, 2020, and after June
21, 2019, you are required to attach a
statement to your timely filed
(including extensions) original or
amended return for that year filed by
March 15, 2021. The statement must:
(i) identify the election for the
corporation to be treated as an entity
for purposes of section 951A pursuant
to the Notice; and (ii) include the
amount of the corporation's transition
AE&P (as described in section 3.02(3)
of the Notice). The corporation should
notify you of this election so you can
comply with this statement
requirement.

DRAFT AS OF
November 18, 2021
If you are required to file Form 8082
but don't do so, you may be subject to
the accuracy-related penalty. This
penalty is in addition to any tax that
results from making your amount or
treatment of the item consistent with
that shown on the corporation's
return. Any deficiency that results
from making the amounts consistent
may be assessed immediately.

Errors

If you believe the corporation has
made an error on your Schedule K-1,
notify the corporation and ask for a
corrected Schedule K-1. Don't change
any items on your copy of
Schedule K-1. Be sure that the
corporation sends a copy of the
corrected Schedule K-1 to the IRS. If
you are unable to reach an agreement
with the corporation regarding the
inconsistency, file Form 8082.

Decedent's Schedule K-1

If you are the executor of an estate
and you have received a decedent's
Schedule K-1, then you have the
responsibility to notify the S
corporation of the name and tax
identification number (TIN) of the
decedent’s estate if the S corporation
stock is part of a decedent’s estate.
This is information that the S
corporation must have to properly
determine its eligibility to maintain
status as a subchapter S corporation.
If a decedent died in a prior year and
the S corporation continues to send
the decedent a Schedule K-1 after
being notified of the decedent’s death,
then you should request that the S
corporation send a corrected
Schedule K-1. If you receive an
interest in an S corporation by reason
of a former shareholder’s death, you
must provide the S corporation with
your name and TIN. For treatment of
S corporation income upon the death

International Boycotts

Every corporation that had operations
in, or related to, a boycotting country,
company, or a national of a boycotting
country must file Form 5713,
International Boycott Report.

If the corporation cooperated with
an international boycott, it must give
you a copy of its Form 5713. You must
file your own Form 5713 to report the
corporation's activities and any other
boycott operations that you may have.
You may lose certain tax benefits if
the corporation participated in, or
cooperated with, an international
boycott. See Form 5713 and its
instructions for details.

Elections

Generally, the corporation decides
how to figure taxable income from its
operations. However, certain
elections are made by you separately
on your income tax return and not by
the corporation. These elections are
made under the following code
sections.
• Section 59(e) (deduction of certain
qualified expenditures ratably over the
period of time specified in that
section). For details, see the
instructions for code J in box 12.
• Section 263A(d) (preproductive
expenses). See the instructions for
code M in box 12.
• Section 617 (deduction and
recapture of certain mining
exploration expenditures).
• Section 901 (foreign tax credit).

-2-

Additional Information

For more information on the treatment
of S corporation income, deductions,
credits, and other items, see Pub.
535, Business Expenses; Pub. 550,
Investment Income and Expenses;
and Pub. 925, Passive Activity and
At-Risk Rules.
To get forms and publications, see
the instructions for your tax return or
visit the IRS website at IRS.gov.

Limitations on Losses,
Deductions, and Credits

There are potential limitations on
corporate losses that you can deduct
on your return. These limitations and
the order in which you must apply
them are as follows: the basis
limitations, the at-risk limitations, the
passive activity limitations, and the
excess business loss limitations.
These limitations are discussed
below.
Other limitations may apply to
specific deductions (for example, the
section 179 expense deduction).
Specific limitations generally apply
before at-risk and passive loss
limitations.

Instructions for Schedule K-1 (Form 1120-S) (2021)

Basis Limitations

Generally, the deduction for your
share of aggregate losses and
deductions reported on Schedule K-1
is limited to the basis of your stock
and loans from you to the corporation.
For details and exceptions, see
section 1366(d). The basis of your
stock is generally figured at the end of
the corporation's tax year. Any losses
and deductions not allowed this year
because of the basis limit can be
carried forward indefinitely and
deducted in a later year subject to the
basis limit for that year.

You may elect to decrease your
basis under (4) prior to decreasing
your basis under (3). If you make this
election, any amount described under
(3) that exceeds the basis of your
stock and debt owed to you by the
corporation is treated as an amount
described under (3) for the following
tax year.

At-Risk Limitations

Generally, if you have (a) a loss or
other deduction from any activity
carried on as a trade or business or
for the production of income by the
corporation, and (b) amounts in the
activity for which you aren't at risk, you
will have to complete Form 6198,
At-Risk Limitations, to figure your
allowable loss for the activity.

DRAFT AS OF
November 18, 2021
You are responsible for keeping the
information needed to figure the basis
of your stock in the corporation.
Schedule K-1 provides information to
help you figure your stock basis at the
end of each corporate tax year. The
basis of your stock (generally, its cost)
is adjusted annually as follows and,
except as noted, in the order listed. In
addition, basis may be adjusted under
other provisions of the Internal
Revenue Code. You should generally
use Form 7203, S Corporation
Shareholder Stock and Debt Basis
Limitations, to figure your aggregate
stock and debt basis.
1. Basis is increased by (a) all
income (including tax-exempt income)
reported on Schedule K-1, and (b) the
excess of the deduction for depletion
(other than oil and gas depletion) over
the basis of the property subject to
depletion.
You must report on your
return (if you are required to
CAUTION file one) any amount required
to be included in gross income for it to
increase your basis.

!

2. Basis is decreased (but not
below zero) by (a) property
distributions (including cash) made by
the corporation reported on
Schedule K-1, box 16, code D, minus
(b) the amount of such distributions in
excess of the basis in your stock.
3. Basis is decreased (but not
below zero) by (a) nondeductible
expenses, and (b) the depletion
deduction for any oil and gas property
held by the corporation, but only to the
extent your share of the property's
adjusted basis exceeds that
deduction.
4. Basis is decreased (but not
below zero) by all losses and
deductions reported on Schedule K-1.

To make the election, attach a
statement to your timely filed original
or amended return that states you
agree to the carryover rule of
Regulations section 1.1367-1(g) and
the name of the S corporation to
which the rule applies. Once made,
the election applies to the year for
which it is made and all future tax
years for that S corporation, unless
the IRS agrees to revoke your
election.

The basis of each share of stock is
increased or decreased (but not
below zero) based on its pro rata
share of the above adjustments. If the
total decreases in basis attributable to
a share exceed that share's basis, the
excess reduces (but not below zero)
the remaining bases of all other
shares of stock in proportion to the
remaining basis of each of those
shares.
Basis of loans. The basis of your
loans to the corporation is generally
the balance the corporation owes you,
adjusted for any reductions and
restorations of loan basis (see the
instructions for box 16, code E). Any
amounts described in (3) and (4),
earlier, not used to offset amounts in
(1), earlier, or to reduce your stock
basis, are used to reduce your loan
basis (to the extent of such basis prior
to such reduction).

!

CAUTION

When determining your basis
in loans to the corporation,
remember that:

• Distributions don't reduce loan
basis, and
• Loans that a shareholder
guarantees or co-signs aren't part of a
shareholder's loan basis.
Shareholders only obtain basis from
acting as a guarantee or in a similar
capacity to the extent the shareholder
makes a payment pursuant to the
guarantee.
See the Instructions for Form 7203
for more details.

Instructions for Schedule K-1 (Form 1120-S) (2021)

-3-

The at-risk rules generally limit the
amount of loss and other deductions
that you can claim to the amount you
could actually lose in the activity.
These losses and deductions include
a loss on the disposition of assets and
the section 179 expense deduction.
However, if you acquired your stock
before 1987, the at-risk rules don't
apply to losses from an activity of
holding real property placed in service
before 1987 by the corporation. The
activity of holding mineral property
doesn't qualify for this exception.

Generally, you aren't at risk for
amounts such as the following.
• The basis of your stock in the
corporation or the basis of your loans
to the corporation if the cash or other
property used to purchase the stock
or make the loans was from a source
(a) covered by nonrecourse
indebtedness (except for certain
qualified nonrecourse financing, as
defined in section 465(b)(6)); (b)
protected against loss by a guarantee,
stop-loss agreement, or other similar
arrangement; or (c) that is covered by
indebtedness from a person who has
an interest in the activity or from a
person related to a person (except
you) having such an interest, other
than a creditor.
• Any cash or property contributed to
a corporate activity, or your interest in
the corporate activity, that is (a)
covered by nonrecourse
indebtedness (except for certain
qualified nonrecourse financing, as
defined in section 465(b)(6)); (b)
protected against loss by a guarantee,
stop-loss agreement, or other similar
arrangement; or (c) covered by
indebtedness from a person who has
an interest in the activity or from a
person related to a person (except
you) having such an interest, other
than a creditor.
Any loss from a section 465 activity
not allowed for this tax year will be
treated as a deduction allocable to the
activity in the next tax year.

Since at-risk limitations apply for
each activity, you should get a
separate statement of income,
expenses, and other items, for each
activity from the corporation.
Note. Schedule K-1, box 18, will be
checked when a statement is
attached.

performed as an employee aren't
treated as performed in a real
property trade or business unless you
owned more than 5% of the stock (or
more than 5% of the capital or profits
interest) in the employer.
3. The rental of a dwelling unit any
shareholder used for personal
purposes during the year for more
than the greater of 14 days or 10% of
the number of days that the residence
was rented at fair rental value.
4. Activities of trading personal
property for the account of owners of
interests in the activities.

See the Instructions for Form 8582 for
details.
Individuals. If you are an
individual, you materially participated
in an activity only if one or more of the
following apply.
1. You participated in the activity
for more than 500 hours during the tax
year.
2. Your participation in the activity
for the tax year constituted
substantially all the participation in the
activity of all individuals (including
individuals who aren't owners of
interests in the activity).
3. You participated in the activity
for more than 100 hours during the tax
year, and your participation in the
activity for the tax year wasn't less
than the participation in the activity of
any other individual (including
individuals who weren’t owners of
interests in the activity) for the tax
year.
4. The activity was a significant
participation activity for the tax year,
and you participated in all significant
participation activities (including
activities outside the corporation)
during the year for more than 500
hours. A significant participation
activity is any trade or business
activity in which you participated for
more than 100 hours during the year
and in which you didn't materially
participate under any of the material
participation tests (other than this
test).
5. You materially participated in
the activity for any 5 tax years
(whether or not consecutive) during
the 10 tax years that immediately
precede the tax year.
6. The activity was a personal
service activity and you materially
participated in the activity for any 3 tax
years (whether or not consecutive)
preceding the tax year. A personal
service activity involves the
performance of personal services in
the fields of health, law, engineering,
architecture, accounting, actuarial
science, performing arts, consulting,
or any other trade or business in
which capital isn't a material
income-producing factor.
7. Based on all the facts and
circumstances, you participated in the
activity on a regular, continuous, and
substantial basis during the tax year.

DRAFT AS OF
November 18, 2021
Passive Activity Limitations

Section 469 provides rules that limit
the deduction of certain losses and
credits. These rules apply to
shareholders who:
• Are individuals, estates, or trusts;
and
• Have a passive activity loss or
credit for the tax year.
Generally, passive activities
include:
1. Trade or business activities in
which you didn't materially participate,
and
2. Activities that meet the
definition of rental activities under
Temporary Regulations section
1.469-1T(e)(3) and Regulations
section 1.469-1(e)(3).

Passive activities don't include the
following.
1. Trade or business activities in
which you materially participated.
2. Rental real estate activities in
which you materially participated if
you were a real estate professional for
the tax year. You were a real estate
professional only if you met both of
the following conditions.
a. More than half of the personal
services you performed in trades or
businesses were performed in real
property trades or businesses in
which you materially participated.
b. You performed more than 750
hours of services in real property
trades or businesses in which you
materially participated.
If you are married filing jointly,
either you or your spouse must
separately meet both (a) and (b) of
the above conditions, without taking
into account services performed by
the other spouse.
A real property trade or business is
any real property development,
redevelopment, construction,
reconstruction, acquisition,
conversion, rental, operation,
management, leasing, or brokerage
trade or business. Services you

If you have a passive activity loss
or credit, use Form 8582, Passive
Activity Loss Limitations, to figure your
allowable passive losses, and Form
8582-CR, Passive Activity Credit
Limitations, to figure your allowable
passive credits. See the instructions
for these forms for details.
If the corporation has more than
one activity, it will attach a statement
to your Schedule K-1 that identifies
each activity (trade or business
activity, rental real estate activity,
rental activity other than rental real
estate, portfolio income) and specifies
the income (loss), deductions, and
credits from each activity.
Note. Schedule K-1, box 19, will be
checked when a statement is
attached.

Material participation. You must
determine if you materially
participated (a) in each trade or
business activity held through the
corporation, and (b) if you were a real
estate professional (defined earlier),
in each rental real estate activity held
through the corporation.
Each interest in rental real estate is
a separate activity, unless you elect to
treat all interests in rental real estate
as one activity. For details on making
this election, see the Instructions for
Schedule E (Form 1040),
Supplemental Income and Loss.
All determinations of material
participation are based on your
participation during the corporation's
tax year.
Material participation standards for
shareholders who are individuals are
listed below. Special rules apply to
certain retired or disabled farmers and
to the surviving spouses of farmers.
-4-

Instructions for Schedule K-1 (Form 1120-S) (2021)

Work counted toward material
participation. Generally, any work
that you or your spouse does in
connection with an activity held
through an S corporation (where you
own your stock at the time the work is
done) is counted toward material
participation. However, work in
connection with the activity isn't
counted toward material participation
if either of the following applies.
1. The work isn't the type of work
that owners of the activity would
usually do, and one of the principal
purposes of the work that you or your
spouse does is to avoid the passive
loss or credit limitations.
2. You do the work in your
capacity as an investor and you aren't
directly involved in the day-to-day
operations of the activity. Examples of
work done as an investor that wouldn't
count toward material participation
include:
a. Studying and reviewing
financial statements or reports on
operations of the activity,
b. Preparing or compiling
summaries or analyses of the
finances or operations of the activity
for your own use, and
c. Monitoring the finances or
operations of the activity in a
nonmanagerial capacity.

deductions, and losses from the
activity as indicated in these
instructions.
2. If you have an overall loss (the
excess of deductions and losses,
including any prior year unallowed
loss, over income) or credits from a
passive activity, report the income,
deductions, losses, and credits from
all passive activities using the
Instructions for Form 8582 or Form
8582-CR, to see if your deductions,
losses, and credits are limited under
the passive activity rules.

capital or repair expenditures, and
other similar decisions.
Modified adjusted gross income
limitation. The maximum special
allowance that single individuals and
married individuals filing a joint return
can qualify for is $25,000. The
maximum is $12,500 for married
individuals who file separate returns
and who lived apart at all times during
the year. The maximum special
allowance for which an estate can
qualify is $25,000 reduced by the
special allowance for which the
surviving spouse qualifies.
If your modified adjusted gross
income (defined below) is $100,000
or less ($50,000 or less if married
filing separately), your loss is
deductible up to the maximum special
allowance referred to in the preceding
paragraph. If your modified adjusted
gross income is more than $100,000
(more than $50,000 if married filing
separately), the special allowance is
limited to 50% of the difference
between $150,000 ($75,000 if married
filing separately) and your modified
adjusted gross income. When
modified adjusted gross income is
$150,000 or more ($75,000 or more if
married filing separately), there is no
special allowance.
Modified adjusted gross income is
your adjusted gross income figured
without taking into account the
following amounts, if applicable.
• Any passive activity loss.
• Any rental real estate loss allowed
under section 469(c)(7) to real estate
professionals (defined earlier).
• Any overall loss from a publicly
traded partnership.
• Any taxable social security or
equivalent railroad retirement
benefits.
• Any deductible contributions to an
IRA or certain other qualified
retirement plans under section 219.
• The student loan interest deduction.
• The tuition and fees deduction.
• The deductible part of
self-employment taxes.
• The exclusion from income of
interest from Series EE or I U.S.
Savings Bonds used to pay higher
education expenses.
• The exclusion of amounts received
under an employer's adoption
assistance program.

DRAFT AS OF
November 18, 2021

Effect of determination. Income
(loss), deductions, and credits from
an activity are nonpassive if you
determine that:
• You materially participated in a
trade or business activity of the
corporation, or
• You were a real estate professional
(defined earlier) in a rental real estate
activity of the corporation.
If you determine that you didn't
materially participate in a trade or
business activity of the corporation or
if you have income (loss), deductions,
or credits from a rental activity of the
corporation (other than a rental real
estate activity in which you materially
participated as a real estate
professional), the amounts from that
activity are passive. Report passive
income (losses), deductions, and
credits as follows.
1. If you have an overall gain (the
excess of income over deductions
and losses, including any prior year
unallowed loss) from a passive
activity, report the income,

Special allowance for a rental real
estate activity. If you actively
participated in a rental real estate
activity, you may be able to deduct up
to $25,000 of the loss (or credit
equivalent to a $25,000 deduction)
from the activity from nonpassive
income. This “special allowance” is an
exception to the general rule
disallowing losses in excess of
income from passive activities. The
special allowance isn't available if you
were married, file a separate return for
the year, and didn't live apart from
your spouse at all times during the
year.
Only individuals can actively
participate in a rental real estate
activity. However, a decedent's estate
(including a qualified revocable trust
for which a section 645 election has
been made) is treated as actively
participating for its tax years ending
less than 2 years after the decedent's
death, if the decedent would have
satisfied the active participation
requirement for the activity for the tax
year the decedent died.
You aren't considered to actively
participate in a rental real estate
activity if, at any time during the tax
year, your interest (including your
spouse's interest) in the activity was
less than 10% (by value) of all
interests in the activity.
Active participation is a less
stringent requirement than material
participation. You may be treated as
actively participating if you
participated, for example, in making
management decisions or arranging
for others to provide services (such as
repairs) in a significant and bona fide
sense. Management decisions that
can count as active participation
include approving new tenants,
deciding rental terms, approving

Instructions for Schedule K-1 (Form 1120-S) (2021)

-5-

Special rules for certain other activities. If you have net income

(loss), deductions, or credits from any
activity to which special rules apply,
the corporation will identify the activity
and all amounts relating to it on
Schedule K-1 or on an attached
statement.
If you have net income subject to
recharacterization under Temporary
Regulations section 1.469-2T(f) and
Regulations section 1.469-2(f), report
such amounts according to the
Instructions for Form 8582.
If you have net income (loss),
deductions, or credits from either of
the following activities, treat such
amounts as nonpassive and report
them as indicated in these
instructions.
1. The rental of a dwelling unit any
shareholder used for personal
purposes during the year for more
than the greater of 14 days or 10% of
the number of days that the residence
was rented at fair rental value.
2. Trading personal property for
the account of owners of interests in
the activity.

Specific Instructions
Part III. Shareholder's
Share of Current Year
Income, Deductions,
Credits, and Other Items

limitations or the at-risk limitations,
take them into account in determining
your income, loss, or credits for this
year. However, except for passive
activity losses and credits, don't
combine the prior year amounts with
any amounts shown on this
Schedule K-1 to get a net figure to
report on your return. Instead, report
the amounts on your return on a
year-by-year basis.

DRAFT AS OF
November 18, 2021
Self-charged interest. The
corporation will report any
“self-charged” interest income or
expense that resulted from loans
between you and the corporation (or
between the corporation and another
S corporation or partnership if both
entities have the same owners with
the same proportional interest in each
entity). If there was more than one
activity, the corporation will provide a
statement allocating the interest
income or expense with respect to
each activity. The self-charged
interest rules don't apply to your
interest in the S corporation if the
corporation made an election under
Regulations section 1.469-7(g) to
avoid the application of these rules.
See the Instructions for Form 8582 for
details.

Excess Business Loss
Limitations

Losses attributable to your trade or
business may be limited, pursuant to
section 461. See Form 461 and the
Instructions for Form 461 for more
information.

The amounts shown in boxes 1
through 17 reflect your share of
income, loss, deductions, credits, and
other items, from corporate business
or rental activities without reference to
limitations on losses, credits, or other
items that may have to be adjusted
because of:
1. The adjusted basis of your
stock and debt in the corporation,
2. The at-risk limitations,
3. The passive activity limitations,
and
4. The excess business loss
limitations.

For information on these
provisions, see Limitations on Losses,
Deductions, and Credits, earlier.
Other limitations may apply to
specific deductions (for example, the
section 179 expense deduction).
Generally, specific limitations apply
before the at-risk and passive loss
limitations.
If you are an individual, and the
above limitations don't apply to the
amounts shown on your
Schedule K-1, take the amounts
shown and report them on the
appropriate lines of your tax return. If
any of the above limitations apply,
adjust the amounts on Schedule K-1
before you report them on your return.
When applicable, the passive
activity limitations on losses are
applied after the limitations on losses
for a shareholder's basis in stock and
debt and the shareholder's at-risk
amount.
If you file your tax return on a
calendar year basis, but the
corporation files a return for a fiscal
year, report the amounts on your tax
return for the year in which the
corporation's fiscal year ends. For
example, if the corporation's tax year
ends in February 2022, report the
amounts on your 2022 tax return.
If you have losses, deductions, or
credits from a prior year that weren’t
deductible or usable because of
certain limitations, such as the basis
-6-

If you have amounts other
than those shown on
CAUTION Schedule K-1 to report on
Schedule E (Form 1040), enter each
item separately on Schedule E (Form
1040), line 28.

!

Codes. In boxes 10, 12, 13, and
boxes 15 through 17, the corporation
will identify each item by entering a
code in the column to the left of the
dollar amount entry space. See List of
Codes, later.

Attached statements. The
corporation will enter an asterisk (*)
after the code, if any, in the column to
the left of the dollar amount entry
space for each item for which it has
attached a statement providing
additional information. For those
informational items that can't be
reported as a single dollar amount,
the corporation will enter an asterisk in
the left column and enter “STMT” in
the dollar amount entry space to
indicate the information is provided on
an attached statement.

Income (Loss)
Box 1. Ordinary Business
Income (Loss)

The amount reported in box 1 is your
share of the ordinary income (loss)
from trade or business activities of the
corporation. Generally, where you
report this amount on Form 1040 or
1040-SR depends on whether the
amount is from an activity that is a
passive activity to you. If you are an
individual shareholder filing a 2021
Form 1040 or 1040-SR, find your
situation below and report your box 1
income (loss) as instructed after
applying the basis and at-risk
limitations on losses. See Limitations
on Losses, Deductions, and Credits,
earlier. If the corporation had more
than one trade or business activity, it
will attach a statement identifying the
income or loss from each activity.

Instructions for Schedule K-1 (Form 1120-S) (2021)

1. Report box 1 income (loss) from
corporate trade or business activities
in which you materially participated on
Schedule E (Form 1040), line 28,
column (i) or (k).
2. Report box 1 income (loss) from
corporate trade or business activities
in which you didn't materially
participate, as follows.
a. If income is reported in box 1,
report the income on Schedule E
(Form 1040), line 28, column (h).
b. If a loss is reported in box 1,
follow the Instructions for Form 8582
to figure how much of the loss can be
reported on Schedule E (Form 1040),
line 28, column (g).

f. You have no current or prior
year unallowed credits from a passive
activity.
g. Your modified adjusted gross
income wasn't more than $100,000
(not more than $50,000 if married
filing separately and you lived apart
from your spouse all year).
2. If you have a loss from a
passive activity in box 2 and you don't
meet all the conditions in (1) above,
follow the Instructions for Form 8582
to figure how much of the loss you can
report on Schedule E (Form 1040),
line 28, column (g).
3. If you were a real estate
professional and you materially
participated in the activity, report
box 2 income (loss) on Schedule E
(Form 1040), line 28, column (i) or (k).
4. If you have income from a
passive activity in box 2, report the
income on Schedule E (Form 1040),
line 28, column (h).

Box 5a. Ordinary Dividends

Report ordinary dividends on Form
1040 or 1040-SR, line 3b. The amount
in box 5a may be attributable to
previously taxed earnings and profits
(PTEP) in annual PTEP accounts that
you have with respect to a foreign
corporation. You will need to
determine the amount of the ordinary
dividends that are attributable to
PTEP in your annual PTEP accounts.

DRAFT AS OF
November 18, 2021
Box 2. Net Rental Real Estate
Income (Loss)

Generally, the income (loss) reported
in box 2 is a passive activity amount
for all shareholders. However, the
income (loss) in box 2 isn't from a
passive activity if you were a real
estate professional (defined earlier)
and you materially participated in the
activity. If the corporation had more
than one rental real estate activity, it
will attach a statement identifying the
income or loss from each activity.
If you are filing a 2021 Form 1040
or 1040-SR, use the following
instructions to determine where to
report a box 2 amount after applying
the basis and at-risk limitations on
losses. See Limitations on Losses,
Deductions, and Credits, earlier.
1. If you have a loss from a
passive activity in box 2 and you meet
all the following conditions, report the
loss on Schedule E (Form 1040),
line 28, column (g).
a. You actively participated in the
corporate rental real estate activities.
See Special allowance for a rental real
estate activity, earlier.
b. Rental real estate activities with
active participation were your only
passive activities.
c. You have no prior year
unallowed losses from these
activities.
d. If you are a married person filing
separately, you lived apart from your
spouse all year.
e. Your total loss from the rental
real estate activities wasn't more than
$25,000 (not more than $12,500 if
married filing separately).

Box 3. Other Net Rental Income
(Loss)

The amount in box 3 is a passive
activity amount for all shareholders. If
the corporation had more than one
rental activity, it will attach a statement
identifying the income or loss from
each activity. After applying the
limitations on losses and deductions,
report the income or loss as follows.
1. If box 3 is a loss, follow the
Instructions for Form 8582 to figure
how much of the loss can be reported
on Schedule E (Form 1040), line 28,
column (g).
2. If income is reported in box 3,
report the income on Schedule E
(Form 1040), line 28, column (h).
See Limitations on Losses,
Deductions, and Credits, earlier.

Portfolio Income

Portfolio income or loss (shown in
boxes 4 through 8b and in box 10,
code A) isn't subject to the passive
activity limitations. Portfolio income
includes income (not derived in the
ordinary course of a trade or
business) from interest, ordinary
dividends, annuities, or royalties, and
gain or loss on the sale of property
that produces such income or is held
for investment.

Box 4. Interest Income

Report interest income on Form 1040
or 1040-SR, line 2b.

Instructions for Schedule K-1 (Form 1120-S) (2021)

-7-

Box 5b. Qualified Dividends

Report any qualified dividends on
Form 1040 or 1040-SR, line 3a. The
amount in box 5b may be attributable
to PTEP in annual PTEP accounts
that you have with respect to a foreign
corporation. You will need to
determine the amount of the qualified
dividends that are attributable to
PTEP in your annual PTEP accounts.
Qualified dividends are

TIP excluded from investment

income, but you may elect to
include part or all of these amounts in
investment income. See the
instructions for line 4g of Form 4952,
Investment Interest Expense
Deduction, for important information
on making this election.

Box 6. Royalties

Report royalties on Schedule E (Form
1040), line 4.

Box 7. Net Short-Term Capital
Gain (Loss)

After applying the limitations on losses
and deductions, report the net
short-term capital gain (loss) on
Schedule D (Form 1040), line 5. See
Limitations on Losses, Deductions,
and Credits, earlier.

Box 8a. Net Long-Term Capital
Gain (Loss)

After applying the limitations on losses
and deductions, report the net
long-term capital gain (loss) on
Schedule D (Form 1040), line 12. See
Limitations on Losses, Deductions,
and Credits, earlier.

Box 8b. Collectibles (28%) Gain
(Loss)

After applying the limitations on losses
and deductions, report collectibles
gain or loss on line 4 of the 28% Rate
Gain Worksheet—Line 18 in the
Instructions for Schedule D (Form
1040). See Limitations on Losses,
Deductions, and Credits, earlier.

Box 8c. Unrecaptured Section
1250 Gain

There are three types of unrecaptured
section 1250 gain. Report your share
of this unrecaptured gain on the
Unrecaptured Section 1250 Gain
Worksheet—Line 19 in the
Instructions for Schedule D (Form
1040) as follows.
• Report unrecaptured section 1250
gain from the sale or exchange of the
corporation's business assets on
line 5.
• Report unrecaptured section 1250
gain from the sale or exchange of an
interest in a partnership on line 10.
• Report unrecaptured section 1250
gain from an estate, trust, regulated
investment company (RIC), or real
estate investment trust (REIT) on
line 11.

allowed on Form 4797. If the
corporation had net section 1231 gain
(loss) from more than one activity, it
will attach a statement that will identify
the section 1231 gain (loss) from each
activity.

Box 10. Other Income (Loss)

certain mining exploration costs
(section 617). See Pub. 535 for
details.
Code E. Section 951A(a) income
inclusions. If the corporation (and
its shareholders, as applicable) has
elected under Notice 2020-69 to be
treated as an entity for purposes of
section 951A, this is your share of the
corporation's global intangible
low-taxed income amount. Report this
amount on Schedule 1 (Form 1040),
line 8n, or the comparable line of your
income tax return, as an addition to
any amount of global intangible
low-taxed income (GILTI) under
section 951A otherwise computed on
Form 8992, U.S. Shareholder
Calculation of Global Intangible
Low-Taxed Income (GILTI).

DRAFT AS OF
November 18, 2021
If the corporation reports only
unrecaptured section 1250 gain from
the sale or exchange of its business
assets, it will enter a dollar amount in
box 8c. If it reports the other two types
of unrecaptured gain, it will provide an
attached statement that shows the
amount for each type of unrecaptured
section 1250 gain.

Box 9. Net Section 1231 Gain
(Loss)

The amount in box 9 is generally
passive if it is from a:
• Rental activity, or
• Trade or business activity in which
you didn't materially participate.
However, an amount from a rental
real estate activity isn't from a passive
activity if you were a real estate
professional (defined earlier) and you
materially participated in the activity.
If the amount is either (a) a loss that
isn't from a passive activity, or (b) a
gain, report it on Form 4797, line 2,
column (g), after applying the basis
and at-risk limitations on losses. See
Limitations on Losses, Deductions,
and Credits, earlier. Don't complete
columns (b) through (f) on line 2 of
Form 4797. Instead, enter “From
Schedule K-1 (Form 1120-S)” across
these columns.
If the amount is a loss from a
passive activity, see Passive Loss
Limitations in the Instructions for Form
4797. After applying the limitations on
losses and deductions, report the loss
following the Instructions for Form
8582 to figure how much of the loss is

See List of Codes, later.

Losses reported in box 10
may be limited. See
CAUTION Limitations on Losses,
Deductions, and Credits, earlier.

!

Code A. Other portfolio income
(loss). The corporation will report
portfolio income other than interest,
ordinary dividend, royalty, and capital
gain (loss) income, and attach a
statement to tell you what kind of
portfolio income is reported.
If the corporation held a residual
interest in a real estate mortgage
investment conduit (REMIC), it will
report on the statement your share of
REMIC taxable income (net loss) that
you report on Schedule E (Form
1040), line 38, column (d). The
statement will also report your share
of any “excess inclusion” that you
report on Schedule E (Form 1040),
line 38, column (c), and your share of
section 212 expenses that you report
on Schedule E (Form 1040), line 38,
column (e).

Code B. Involuntary conversions.
This is your net loss from involuntary
conversions due to casualty or theft.
The corporation will give you a
statement that shows the amounts to
be reported on Form 4684, Casualties
and Thefts, line 34, columns (b)(i), (b)
(ii), and (c).
If there was a gain (loss) from a
casualty or theft to property not used
in a trade or business or for
income-producing purposes, the
corporation will provide you with the
information you need to complete
Form 4684.
Code C. Section 1256 contracts
and straddles. The corporation will
report any net gain or loss from
section 1256 contracts. Report this
amount on Form 6781, Gains and
Losses From Section 1256 Contracts
and Straddles.
Code D. Mining exploration costs
recapture. The corporation will give
you a statement that shows the
information needed to recapture
-8-

This information will be
provided on line 10 using
CAUTION code E only if the corporation
(and its shareholders, if applicable)
has elected to be treated as an entity
for purposes of section 951A under
Notice 2020-69. If no election has
been made under the Notice, see the
instructions for Part V of Schedule K-3
(Form 1120-S).

!

Code F. Inclusions of subpart F income. The corporation will provide
your share of its section 951(a)(1)(A)
inclusions. Report this amount on your
Form 1040, 1040-SR, or relevant
income tax return.
Code G. Section 951(a)(1)(B) inclusions. The corporation will
provide your share of its section
951(a)(1)(B) inclusions. Report this
amount on your Form 1040, 1040-SR,
or relevant income tax return.
If the corporation has chosen
to apply the provisions of
CAUTION Proposed Regulations section
1.958-1(d) for the tax year, no
information will be provided on line 10
using codes F or G. Instead, the
corporation will provide information
needed to figure your section 951(a)
inclusions in Part V of Schedule K-3
(Form 1120-S).

!

Code H. Other income (loss).
Amounts with code H are other items
of income, gain, or loss not included in
boxes 1 through 9 or in box 10 using
codes A through G. The corporation
should give you a description and the
amount of your share for each of
these items.

Instructions for Schedule K-1 (Form 1120-S) (2021)

Report loss items that are passive
activity amounts to you following the
Instructions for Form 8582.
Code H items may include the
following.
• Income from recoveries of tax
benefit items. A tax benefit item is an
amount you deducted in a prior tax
year that reduced your income tax.
Report this amount on Schedule 1
(Form 1040), line 8z, to the extent it
reduced your tax in the prior year.
• Gambling gains and losses.
1. If the corporation wasn't
engaged in the trade or business of
gambling, (a) report gambling
winnings on Schedule 1 (Form 1040),
line 8b, and (b) deduct gambling
losses to the extent of winnings on
Schedule A (Form 1040), line 16.
2. If the corporation was engaged
in the trade or business of gambling,
(a) report gambling winnings on
Schedule E (Form 1040), line 28, and
(b) deduct gambling losses (to the
extent of winnings) on Schedule E
(Form 1040), line 28, column (i).
• Gain (loss) from the disposition of
an interest in oil, gas, geothermal, or
other mineral properties. The
corporation will attach a statement
that provides a description of the
property, your share of the amount
realized from the disposition, your
share of the corporation's adjusted
basis in the property (for other than oil
or gas properties), and your share of
the total intangible drilling costs,
development costs, and mining
exploration costs (section 59(e)
expenditures) passed through for the
property. You must figure your gain or
loss from the disposition by increasing
your share of the adjusted basis by
the intangible drilling costs,
development costs, or mine
exploration costs for the property that
you capitalized (that is, costs that you
didn't elect to deduct under section
59(e)). Report a loss in Part I of Form
4797. Report a gain in Part III of Form
4797 in accordance with the
instructions for line 28. See
Regulations section 1.1254-4 for
details.
• Net short-term capital gain (loss)
and net long-term capital gain (loss)
from Schedule D (Form 1120-S) that
isn't portfolio income. An example is
gain or loss from the disposition of
nondepreciable personal property
used in a trade or business activity of
the corporation. Report total net

short-term gain (loss) on Schedule D
(Form 1040), line 5. Report the total
net long-term gain (loss) on
Schedule D (Form 1040), line 12.
• Gain from the sale or exchange of
qualified small business (QSB) stock
(as defined in the Instructions for
Schedule D (Form 1040)) eligible for
the section 1202 exclusion. The
corporation should also give you (a)
the name of the corporation that
issued the QSB stock, (b) your share
of the corporation's adjusted basis
and sales price of the QSB stock, and
(c) the dates the QSB stock was
bought and sold. The following
additional limitations apply at the
shareholder level.
1. You must have held an interest
in the corporation when the
corporation acquired the QSB stock
and at all times thereafter until the
corporation disposed of the QSB
stock.
2. Your share of the eligible
section 1202 gain can't exceed the
amount that would have been
allocated to you based on your
interest in the corporation at the time
the QSB stock was acquired.

the amount of the allowable
postponed gain.
• Gain eligible for section 1045
rollover (replacement stock not
purchased by the corporation). The
corporation should also give you (a)
the name of the corporation that
issued the qualified small business
(QSB) stock, (b) your share of the
corporation's adjusted basis and sales
price of the QSB stock, and (c) the
dates the QSB stock was bought and
sold. To qualify for the section 1045
rollover:
1. You must have held an interest
in the corporation during the entire
period in which the corporation held
the QSB stock (more than 6 months
prior to the sale),
2. Your share of the gain eligible
for the section 1045 rollover can't
exceed the amount that would have
been allocated to you based on your
interest in the corporation at the time
the QSB stock was acquired, and
3. You must purchase other QSB
stock (as defined in the Instructions
for Schedule D (Form 1040)) during
the 60-day period that began on the
date the QSB stock was sold by the
corporation.

DRAFT AS OF
November 18, 2021
See Form 8949, Schedule D (Form
1040), and the related instructions for
details on how to report the gain and
the amount of the allowable exclusion.
• Gain eligible for section 1045
rollover (replacement stock
purchased by the corporation). The
corporation should also give you (a)
the name of the corporation that
issued the qualified small business
(QSB) stock, (b) your share of the
corporation's adjusted basis and sales
price of the QSB stock, and (c) the
dates the QSB stock was bought and
sold. To qualify for the section 1045
rollover:
1. You must have held an interest
in the corporation during the entire
period in which the corporation held
the QSB stock (more than 6 months
prior to the sale), and
2. Your share of the gain eligible
for the section 1045 rollover can't
exceed the amount that would have
been allocated to you based on your
interest in the corporation at the time
the QSB stock was acquired.
See Form 8949, Schedule D (Form
1040), and the related instructions for
details on how to report the gain and

Instructions for Schedule K-1 (Form 1120-S) (2021)

-9-

See Form 8949, Schedule D (Form
1040), and the related instructions for
details on how to report the gain and
the amount of the allowable
postponed gain.

Deductions
There are potential limitations
on corporate losses you can
CAUTION deduct on your return. These
limitations and the order in which you
must apply them are as follows: the
basis limitations, the at-risk
limitations, the passive activity
limitations, and the excess business
loss limitations. See Limitations on
Losses, Deductions, and Credits,
earlier.

!

Box 11. Section 179 Deduction

Use this amount, along with the total
cost of section 179 property placed in
service during the year from other
sources, to complete Part I of Form
4562, Depreciation and Amortization.
The corporation will report on an
attached statement your share of the
cost of any qualified enterprise zone
property or qualified real property it
placed in service during its tax year.

Report the amount from line 12 of
Form 4562 allocable to a passive
activity using the Instructions for Form
8582. If the amount isn't a passive
activity deduction, report it on
Schedule E (Form 1040), line 28,
column (j), after applying the basis
and at-risk limitations on losses. See
Limitations on Losses, Deductions,
and Credits, earlier.

60% AGI limitation, on Schedule A
(Form 1040), line 11.
Code B. Cash contributions (30%).
Report this amount, subject to the
30% AGI limitation, on Schedule A
(Form 1040), line 11.
Code C. Noncash contributions
(50%). Report this amount, subject to
the 50% AGI limitation, on Schedule A
(Form 1040), line 12.

Form 1040 or 1040-SR, line 12b,
subject to the $300 ($600 if married
filing jointly) limit. If you don’t make
this election, add this amount to the
cash contributions reported in box 12
using code A and enter the total
amount, subject to a 60% AGI
limitation, as discussed in the earlier
code A instructions.

DRAFT AS OF
November 18, 2021
Box 12. Other Deductions
See List of Codes, later.

Deductions reported in box 12
may be limited. See
CAUTION Limitations on Losses,
Deductions, and Credits, earlier.

!

Contributions. Codes A through G.
The corporation will give you a
statement that shows charitable
contributions subject to the 100%,
60%, 50%, 30%, and 20% adjusted
gross income (AGI) limitations.
If the corporation made a property
contribution, it will report on an
attached statement your share of both
the fair market value (FMV) and
adjusted basis of the property. Use
these amounts to adjust your stock
basis. If the corporation made a
qualified conservation contribution, it
will report the FMV of the underlying
property before and after the
donation, the type of legal interest
contributed, and a description of the
conservation purpose furthered by the
donation. If the corporation made a
contribution of real property located in
a registered historic district, it will
report any information you will need to
take a deduction.
For more details, see Pub. 526,
Charitable Contributions, and the
Instructions for Schedule A (Form
1040). If your contributions are subject
to more than one of the AGI
limitations, see Pub. 526.
Charitable contribution deductions
aren't taken into account in figuring
your passive activity loss for the year.
Don't enter them on Form 8582.
Form 8283. If you received a copy of
Form 8283, Noncash Charitable
Contributions, from the corporation,
attach the copy to your tax return. Use
the amount shown on your
Schedule K-1, not the amount shown
on the Form 8283, to figure your
deduction.
Code A. Cash contributions (60%).
Report this amount, subject to the

Food inventory contributions.
The corporation will report on an
attached statement your share of
qualified food inventory contributions.
The food inventory contribution isn't
included in the amount reported in
box 12 using code C. The corporation
will also report your share of the
corporation's net income from the
business activities that made the food
inventory contribution(s). Your
deduction for food inventory
contributions made during 2021 can't
exceed 25% of your aggregate net
income for the tax year from the
business activities from which the
food inventory contribution was made
(including your share of net income
from partnership or S corporation
businesses that made food inventory
contributions). Amounts that exceed
the 25% limitation may be carried over
for up to 5 years. Report this amount,
subject to the 50% AGI limitation, on
Schedule A (Form 1040), line 12.
Code D. Noncash contributions
(30%). Report this amount, subject to
the 30% AGI limitation, on Schedule A
(Form 1040), line 12.
Code E. Capital gain property to a
50% limit organization (30%).
Report this amount, subject to the
30% AGI limitation, on Schedule A
(Form 1040), line 12. See Worksheet
2. Applying the Deduction Limits in
Pub. 526.
Code F. Capital gain property
(20%). Report this amount, subject to
the 20% AGI limitation, on Schedule A
(Form 1040), line 12.
Code G. Contributions (100%).
The corporation will use code G to
report the following contributions.

Cash contributions made in
2021. The corporation will report your
share of qualified cash contributions
that were made in 2021. You can elect
to deduct 100% of these contributions
on Schedule A (Form 1040), line 11,
or, if you are not filing Schedule A, on
-10-

Qualified conservation
contributions of property used in
agriculture or livestock
production. The corporation will
report on an attached statement your
share of qualified conservation
contributions of property used in
agriculture or livestock production.
This contribution isn't included in the
amount reported in box 12 using code
C or G. If you are a farmer or rancher,
you qualify for a 100% AGI limitation
for this contribution. Otherwise, your
deduction for this contribution is
subject to a 50% AGI limitation.
Report this amount, subject to your
applicable limitation, on Schedule A
(Form 1040), line 12. See Pub. 526 for
more information on qualified
conservation contributions.

Code H. Investment interest expense. Report this amount on Form
4952, line 1.
If the corporation has investment
income or other investment expense,
it will report your share of these items
in box 17 using codes A and B.
Include investment income and
expenses from other sources to figure
how much of your total investment
interest is deductible.
For more information on the special
provisions that apply to investment
interest expense, see Form 4952 and
Pub. 550.
Code I. Deductions—Royalty income. Report deductions allocable to
royalties on Schedule E (Form 1040),
line 19. For this type of expense, enter
“From Schedule K-1 (Form 1120-S).”
These deductions aren't taken into
account in figuring your passive
activity loss for the year. Don't enter
them on Form 8582.
Code J. Section 59(e)(2) expenditures. The corporation will show on
an attached statement the type and
the amount of qualified expenditures
for which you may make a section
59(e) election. The statement will also
identify the property for which the
expenditures were paid or incurred. If

Instructions for Schedule K-1 (Form 1120-S) (2021)

there is more than one type of
expenditure, the amount of each type
will also be listed.
If you deduct these expenditures in
full in the current year, they are
treated as adjustments or tax
preference items for purposes of
alternative minimum tax. However,
you may elect to amortize these
expenditures over the number of
years in the applicable period rather
than deduct the full amount in the
current year. If you make this election,
these items aren't treated as
adjustments or tax preference items.
Under the election, you can deduct
circulation expenditures ratably over a
3-year period. Research and
experimental expenditures and mining
exploration and development costs
can be amortized over a 10-year
period. Intangible drilling and
development costs can be amortized
over a 60-month period. The
amortization periods begin with the
month in which such costs were paid
or incurred.
Make the election on Form 4562. If
you make the election, report the
current year amortization of section
59(e) expenditures from Part VI of
Form 4562 on Schedule E (Form
1040), line 28. If you don't make the
election, report the section 59(e)(2)
expenditures on Schedule E (Form
1040), line 28, and figure the resulting
adjustment or tax preference item
(see Form 6251, Alternative Minimum
Tax—Individuals). Whether you
deduct the expenditures or elect to
amortize them, report the amount on a
separate line in column (i) of line 28 if
you materially participated in the
activity. If you didn't materially
participate, follow the Instructions for
Form 8582 to figure how much of the
deduction can be reported in column
(g).

these expenses currently or you may
need to capitalize them under section
263A. See Pub. 225, Farmer's Tax
Guide, and Regulations section
1.263A-4 for details.
Code N. Reserved for future use.
Code O. Reforestation expense deduction. The corporation will provide
a statement that describes the
qualified timber property for these
reforestation expenses. The expense
deduction is limited to $10,000
($5,000 if married filing separately) for
each qualified timber property,
including your share of the
corporation's expense and any
reforestation expenses you separately
paid or incurred during the tax year.
If you didn't materially participate in
the activity, use Form 8582 to figure
the amount to report on Schedule E
(Form 1040), line 28, column (g). If
you materially participated in the
reforestation activity, report the
deduction on Schedule E (Form
1040), line 28, column (i).

to figure the interest expense you can
report in column (g). Material
participation is defined earlier under
Passive Activity Limitations. If the
proceeds were used in an investment
activity, report the interest on Form
4952. If the proceeds are used for
personal purposes, the interest is
generally not deductible.
• Contributions to a capital
construction fund (CCF). The
deduction for a CCF investment isn't
taken on Schedule E (Form 1040).
Instead, you subtract the deduction
from the amount that would normally
be entered as taxable income on
Form 1040 or 1040-SR, line 15. In the
margin to the left of line 15, enter
“CCF” and the amount of the
deduction.
• Penalty on early withdrawal of
savings. Report this amount on
Schedule 1 (Form 1040), line 18.
• Film, television, and live theatrical
production expenses. The corporation
will provide a statement that describes
the film, television, or live theatrical
production generating these
expenses. If you didn't materially
participate in the activity, use Form
8582 to determine the amount that
can be reported on Schedule E (Form
1040), line 28, column (g). If you
materially participated in the
production activity, report the
deduction on Schedule E (Form
1040), line 28, column (i).
The corporation will give you a
description and the amount of your
share for each of these items.

DRAFT AS OF
November 18, 2021

Code K. Reserved for future use.
Code L. Deductions—Portfolio
(other). Generally, you should report
these amounts on Schedule A (Form
1040), line 16. See the instructions for
Schedule A (Form 1040), line 16, for
details.
These deductions aren't taken into
account in figuring your passive
activity loss for the year. Don't enter
them on Form 8582.
Code M. Preproductive period expenses. You may be able to deduct

Codes P through R. Reserved for
future use.
Code S. Other deductions.
Amounts with this code may include
the following.
• Itemized deductions that Form
1040 or 1040-SR filers report on
Schedule A (Form 1040).
• Soil and water conservation
expenditures and endangered
species recovery expenditures. See
section 175 for limitations on the
amount you are allowed to deduct.
• Expenditures for the removal of
architectural and transportation
barriers to the elderly and disabled
that the corporation elected to treat as
a current expense. The deductions
are limited by section 190(c) to
$15,000 per year from all sources.
• Interest expense allocated to
debt-financed distributions. The
manner in which you report such
interest expense depends on your use
of the distributed debt proceeds. If the
proceeds were used in a trade or
business activity, report the interest
on Schedule E (Form 1040), line 28.
In column (a), enter the name of the
corporation and “interest expense.” If
you materially participated in the trade
or business activity, enter the interest
expense in column (i). If you didn't
materially participate in the activity,
follow the Instructions for Form 8582

Instructions for Schedule K-1 (Form 1120-S) (2021)

-11-

Box 13. Credits

See List of Codes, later.

If you have credits that are passive
activity credits to you, you must
complete Form 8582-CR in addition to
the credit forms identified below. See
Passive Activity Limitations, earlier,
and the Instructions for Form
8582-CR for details.
In general, shareholders

TIP whose only sources for a

credit listed on Form 3800,
General Business Credit, Part III, are
partnerships, S corporations, estates,
trusts, and cooperatives, aren't
required to complete the applicable
credit form or attach it to their return.
Instead, they can report the credit
amounts reported to them by these
pass-through entities directly on Form
3800, Part III, and enter the EIN of the
entity in column (b) of Part III.

However, when applicable, all
shareholders must complete and
attach the following credit forms to
their return.

• Form 3468, Investment Credit
(Form 3800, Part III, line 1a).
• Form 8864, Biodiesel and
Renewable Diesel Fuels Credit (Form
3800, Part III, line 1l).

from other qualified rehabilitation
expenditures (box 17, code C)
because they are subject to different
passive activity limitation rules. See
the Instructions for Form 8582-CR for
details.
Code F. Other rental real estate
credits. The corporation will identify
the type of credit and any other
information you need to figure these
credits from rental real estate
activities (other than the low-income
housing credit and qualified
rehabilitation expenditures). These
credits may be limited by the passive
activity limitations. If the credits are
from more than one activity, the
corporation will identify the credits
from each activity on an attached
statement. See Passive Activity
Limitations, earlier, and the
Instructions for Form 8582-CR for
details.

Code L. Empowerment zone employment credit. Report this amount
on line 3 of Form 8844, Empowerment
Zone Employment Credit, or Form
3800, Part III, line 3 (see TIP, earlier).
Code M. Credit for increasing research activities. Report this
amount on line 37 of Form 6765,
Credit for Increasing Research
Activities, or in Part III of Form 3800
(see TIP, earlier) as follows.
• The S corporation will provide
information necessary to determine if
it is an eligible small business under
section 38(c)(5)(A). If you and the
S corporation are eligible small
businesses, report the credit on
line 4i. For more information, see the
Instructions for Form 3800.
• All others, report the credit on
line 1c.

DRAFT AS OF
November 18, 2021
See the Instructions for Form 3800 for
more details.
Codes A and B. Reserved for future
use.

Codes C and D. Low-income housing credit. If section 42(j)(5) applies,
the corporation will report your share
of the low-income housing credit
using code C. If section 42(j)(5)
doesn't apply, your share of the credit
will be reported using code D. Any
allowable low-income housing credit
reported using code C or code D is
reported on line 4 of Form 8586 or
Form 3800, Part III, line 4d (see TIP,
earlier).
Keep a separate record of the
low-income housing credit from each
separate source so that you can
correctly figure any recapture of
low-income housing credit that may
result from the disposition of all or part
of your stock in the corporation. For
more information on recapture, see
the Instructions for Form 8611,
Recapture of Low-Income Housing
Credit.

Code E. Qualified rehabilitation expenditures (rental real estate). The
corporation will report your share of
the qualified rehabilitation
expenditures and other information
you need to complete Form 3468
related to rental real estate activities
using code E. Your share of qualified
rehabilitation expenditures from
property not related to rental real
estate activities will be reported in
box 17 using code C. See the
Instructions for Form 3468 for details.
If the corporation is reporting
expenditures from more than one
activity, an attached statement will
separately identify the expenditures
from each activity.
Combine the expenditures (for
Form 3468 reporting) from box 13,
code E, and from box 17, code C. The
expenditures related to rental real
estate activities (box 13, code E) are
reported on Schedule K-1 separately

Code G. Other rental credits. The
corporation will identify the type of
credit and any other information you
need to figure these rental credits.
These credits may be limited by the
passive activity limitations. If the
credits are from more than one
activity, the corporation will identify
the credits from each activity on an
attached statement. See Passive
Activity Limitations, earlier, and the
Instructions for Form 8582-CR for
details.
Code H. Undistributed capital
gains credit. Code H represents
taxes paid on undistributed capital
gains by a regulated investment
company or real estate investment
trust. Report these taxes on Schedule
3 (Form 1040), line 13a. Reduce the
basis of your stock by this tax.
Code I. Biofuel producer credit.
Report this amount on line 3 of Form
6478, Biofuel Producer Credit, or
Form 3800, Part III, line 4c (see TIP,
earlier).
Code J. Work opportunity credit.
Report this amount on line 3 of Form
5884, Work Opportunity Credit, or
Form 3800, Part III, line 4b (see TIP,
earlier).
Code K. Disabled access credit.
Report this amount on line 7 of Form
8826, Disabled Access Credit, or
Form 3800, Part III, line 1e (see TIP,
earlier).

-12-

Code N. Credit for employer social
security and Medicare taxes.
Report this amount on line 5 of Form
8846, Credit for Employer Social
Security and Medicare Taxes Paid on
Certain Employee Tips, or Form 3800,
Part III, line 4f (see TIP, earlier).
Code O. Backup withholding. This
is your share of the credit for backup
withholding on dividends, interest
income, and other types of income.
Include this amount in the total you
enter on Form 1040 or 1040-SR,
line 25c, and attach a copy of your
Schedule K-1 to your tax return.
Instead of attaching a copy of your
Schedule K-1 to your tax return, you
can include a statement with your
return that provides the corporation's
name, address, EIN, and backup
withholding amount.
Code P. Other credits. On a
statement attached to Schedule K-1,
the corporation will identify the type of
credit and any other information you
need to figure credits other than those
reported with codes A through O.
Most credits identified by code P will
be reported on Form 3800, Part III
(see TIP, earlier).
Credits that may be reported with
code P include the following.
• Unused investment credit from the
qualifying advanced coal project
credit, qualifying gasification project
credit, or qualifying advanced energy
project credit allocated from
cooperatives (Form 3468, line 9).
• Unused investment credit from the
rehabilitation credit or energy credit

Instructions for Schedule K-1 (Form 1120-S) (2021)

allocated from cooperatives (Form
3468, line 13).
• Employee retention credit for
employers affected by qualified
disasters (Form 5884-A).
• Orphan drug credit (Form 8820).
• Enhanced oil recovery credit (Form
8830).
• Renewable electricity, refined coal,
and Indian coal production credit
(Form 8835). The corporation will
provide a statement showing the
allocation of the credit for production
during the 4-year period beginning on
the date the facility was placed in
service and for production after that
period.
• Indian employment credit (Form
8845).
• Biodiesel and renewable diesel
fuels credit. If this credit includes the
small agri-biodiesel producer credit,
the corporation will provide additional
information on an attached statement.
If no statement is attached, report this
amount on Form 8864, line 9. If a
statement is attached, see the
instructions for Form 8864, line 9.
• New markets credit (Form 8874).
• Credit for small employer pension
plan startup costs and
auto-enrollment (Form 8881).
• Credit for employer-provided
childcare facilities and services (Form
8882).
• Low sulfur diesel fuel production
credit (Form 8896).
• Qualified railroad track
maintenance credit (Form 8900).
• Credit for oil and gas production
from marginal wells (Form 8904).
• Distilled spirits credit (Form 8906).
• Energy efficient home credit (Form
8908).
• Alternative motor vehicle credit
(Form 8910).
• Alternative fuel vehicle refueling
property credit (Form 8911).
• Qualified zone academy bond
credit. Report this amount on Form
8912.
• Clean renewable energy bond
credit. Report this amount on Form
8912.
• New clean renewable energy bond
credit. Report this amount on Form
8912.
• Qualified energy conservation bond
credit. Report this amount on Form
8912.
• Build America bond credit. Report
this amount on Form 8912.

• Qualified school construction bond
credit. Report this amount on Form
8912.
• Mine rescue team training credit
(Form 8923).
• Credit for employer differential
wage payments (Form 8932).
• Carbon oxide sequestration credit
(Form 8933).
• Qualified plug-in electric drive
motor vehicle credit (Form 8936).
• Qualified two-wheeled plug-in
electric vehicle credit (Form 8936).
• Credit for small employer health
insurance premiums (Form 8941).
• Employer credit for paid family and
medical leave (Form 8994).

included in box 1 of Schedule K-1.
The corporation should have attached
a statement that shows any income
from, or deductions allocable to, such
properties that are included in boxes 2
through 12, 16, and 17 of
Schedule K-1. Use the amounts
reported here and any other reported
amounts to help you figure the net
amount to enter on Form 6251, line 2t.

DRAFT AS OF
November 18, 2021
Box 14. International
Transactions

If the S corporation checked the box,
see the attached Schedule K-3 with
respect to items of international tax
relevance.

Box 15. Alternative Minimum
Tax (AMT) Items

See List of Codes, later.

Use the information reported in
box 15 (as well as your adjustments
and tax preference items from other
sources) to prepare your Form 6251,
Alternative Minimum
Tax—Individuals, or Schedule I (Form
1041), Alternative Minimum
Tax—Estates and Trusts.
Code A. Post-1986 depreciation
adjustment. This amount is your
share of the corporation's post-1986
depreciation adjustment. If you are an
individual shareholder, report this
amount on Form 6251, line 2l.
Code B. Adjusted gain or loss.
This amount is your share of the
corporation's adjusted gain or loss. If
you are an individual shareholder,
report this amount on Form 6251,
line 2k.
Code C. Depletion (other than oil &
gas). This amount is your share of
the corporation's depletion
adjustment. If you are an individual
shareholder, report this amount on
Form 6251, line 2d.
Codes D and E. Oil, gas, & geothermal properties—Gross income
and deductions. The amounts
reported on these lines include only
the gross income (code D) from, and
deductions (code E) allocable to, oil,
gas, and geothermal properties

Instructions for Schedule K-1 (Form 1120-S) (2021)

-13-

Code F. Other AMT items. Report
the information on the statement
attached by the corporation on the
applicable lines of Form 6251 or
Schedule I (Form 1041).

Box 16. Items Affecting
Shareholder Basis
See List of Codes, later.

Code A. Tax-exempt interest income. Report on your return, as an
item of information, your share of the
tax-exempt interest received or
accrued by the corporation during the
year. Individual shareholders include
this amount on Form 1040 or
1040-SR, line 2a. Generally, you must
increase the basis of your stock by
this amount.
Code B. Other tax-exempt income.
Generally, you must increase the
basis of your stock by the amount
shown, but don't include it in income
on your tax return.
Code C. Nondeductible expenses.
The nondeductible expenses paid or
incurred by the corporation aren't
deductible on your tax return.
Generally, you must decrease the
basis of your stock by this amount.
Code D. Distributions. Reduce the
basis of your stock (as explained
earlier) by distributions, not reported
on Form 1099-DIV, of property or
money. This amount will include any
amounts included in income with
respect to new clean renewable
energy, qualified energy conservation,
qualified school construction, build
America, or (for bonds issued after
October 3, 2008) qualified zone
academy bonds. If these distributions
exceed the basis of your stock, the
excess is treated as capital gain from
the sale or exchange of property and
is reported on Form 8949 and
Schedule D (Form 1040).
Code E. Repayment of loans from
shareholders. If these payments are
made on a loan with a reduced basis,
the repayments must be allocated in

part to a return of your basis in the
loan and in part to the receipt of
income. See Regulations section
1.1367-2 for information on reduction
in basis of a loan and restoration in
basis of a loan with a reduced basis.
See Rev. Rul. 64-162, 1964-1 (Part 1)
C.B. 304, and Rev. Rul. 68-537,
1968-2 C.B. 372, for details.

your share of any recapture of a
low-income housing credit from its
investment in partnerships to which
the provisions of section 42(j)(5)
apply. All other recapture of
low-income housing credits will be
identified by code F.
Keep a separate record of each
type of recapture so that you will be
able to correctly figure any credit
recapture that may result from the
disposition of all or part of your
corporate stock. For details, see Form
8611.

Under the Look-Back Method for
Property Depreciated Under the
Income Forecast Method, to report
any such interest.
Code K. Dispositions of property
with section 179 deductions. The
corporation will report your share of
gain or loss on the sale, exchange, or
other disposition of property for which
a section 179 expense deduction was
passed through to shareholders with
code K. If the corporation passed
through a section 179 expense
deduction for the property, you must
report the gain or loss, if any, and any
recapture of the section 179 expense
deduction for the property on your
income tax return (see the Instructions
for Form 4797 for details). The
corporation will provide all the
following information.
1. Description of the property.
2. Date the property was acquired
and placed in service.
3. Date of the sale or other
disposition of the property.
4. Your share of the gross sales
price or amount realized.
5. Your share of the cost or other
basis plus the expense of sale.
6. Your share of the depreciation
allowed or allowable.
7. Your share of the section 179
expense deduction (if any) passed
through for the property and the
corporation's tax year(s) in which the
amount was passed through.
To figure the depreciation allowed
or allowable for Form 4797, line 22,
add to the amount from item (6) above
the amount of your share of the
section 179 expense deduction,
reduced by any unused carryover of
the deduction for this property. This
amount may be different than the
amount of section 179 expense you
deducted for the property if your
interest in the corporation has
changed.
8. If the disposition is due to a
casualty or theft, any information you
need to complete Form 4684.
9. If the sale was an installment
sale, any information you need to
complete Form 6252, Installment Sale
Income. The corporation will
separately report your share of all
payments received for the property in
the following tax years. See the
Instructions for Form 6252 for details.

DRAFT AS OF
November 18, 2021
Code F. Foreign taxes paid or accrued. Report this amount on Form
7203, line 46(a).

Box 17. Other Information
See List of Codes, later.

Code A. Investment income.
Report this amount on Form 4952,
line 4a.
Code B. Investment expenses.
Report this amount on Form 4952,
line 5.

Code C. Qualified rehabilitation expenditures (other than rental real
estate). The corporation will report
your share of qualified rehabilitation
expenditures and other information
you need to complete Form 3468 for
property not related to rental real
estate activities in box 17 using code
C. Your share of qualified
rehabilitation expenditures related to
rental real estate activities is reported
in box 13 using code E. See the
Instructions for Form 3468 for details.
If the corporation is reporting
expenditures from more than one
activity, the attached statement will
separately identify the expenditures
from each activity.
Combine the expenditures (for
Form 3468 reporting) from box 13,
code E, and from box 17, code C. The
expenditures related to rental real
estate activities (box 13, code E) are
reported on Schedule K-1 separately
from other qualified rehabilitation
expenditures (box 17, code C)
because they are subject to different
passive activity limitation rules. See
the Instructions for Form 8582-CR for
details.
Code D. Basis of energy property.
If the corporation provides an
attached statement for code D, use
the information on the statement to
complete the applicable energy credit
on line 12 of Form 3468. See the
Instructions for Form 3468 for details.
Codes E and F. Recapture of
low-income housing credit. The
corporation will identify by code E

Code G. Recapture of investment
credit. The corporation will provide
any information you need to figure
your recapture tax on Form 4255,
Recapture of Investment Credit. See
the Form 3468 on which you took the
original credit for other information
you need to complete Form 4255.
You may also need Form 4255 if
your proportionate stock interest in
the corporation is reduced by more
than one-third after you were
allocated part of an investment credit.

Code H. Recapture of other credits. On a statement attached to
Schedule K-1, the corporation will
report any information you need to
figure the recapture of other credits
including the new markets credit,
Indian employment credit, credit for
employer-provided childcare facilities
and services, alternative motor
vehicle credit, alternative fuel vehicle
refueling property credit, and qualified
plug-in electric drive motor vehicle
credit.
Code I. Look-back interest—Completed long-term contracts. The
corporation will report any information
you need to figure the interest due or
to be refunded under the look-back
method of section 460(b)(2) on certain
long-term contracts. Use Form 8697,
Interest Computation Under the
Look-Back Method for Completed
Long-Term Contracts, to report any
such interest.
Code J. Look-back interest—Income forecast method. The
corporation will report any information
you need to figure the interest due or
to be refunded under the look-back
method of section 167(g)(2) for
certain property placed in service after
September 13, 1995, and depreciated
under the income forecast method.
Use Form 8866, Interest Computation
-14-

Instructions for Schedule K-1 (Form 1120-S) (2021)

Code L. Recapture of section 179
deduction. The corporation will
report your share of any recapture of
section 179 expense deduction if
business use of any property for
which the section 179 expense
deduction was passed through to
shareholders dropped to 50% or less
before the end of the recapture
period. If this occurs, the corporation
must provide the following
information.
1. Your share of the depreciation
allowed or allowable (not including the
section 179 expense deduction).
2. Your share of the section 179
expense deduction (if any) passed
through for the property and the
corporation's tax year(s) in which the
amount was passed through. Reduce
this amount by the portion, if any, of
your unused (carryover) section 179
expense deduction for this property.

9. Installment sale income.
10. Character of the
income—capital or ordinary.
11. Shareholder’s share of the
deferred obligation. See computation
below.

Code M. Section 453(l)(3) information. The corporation will report any
information you need to figure the
interest due under section 453(l)(3)
with respect to the disposition of
certain timeshares and residential lots
on the installment method. Report the
interest on Schedule 2 (Form 1040),
line 14. See section 453(l)(3) for
details on how to figure the interest.

Code O. Section 1260(b) information. The corporation will report any
information you need to figure the
interest due under section 1260(b). If
the corporation had gain from certain
constructive ownership transactions,
your tax liability must be increased by
the interest charge on any deferral of
gain recognition under section
1260(b). Report the interest on
Schedule 2 (Form 1040), line 17z.
Enter “1260(b)” and the amount of the
interest in the space to the left of
line 17z. See section 1260(b) for
details on how to figure the interest.

Deferred obligation
computation. For each Form 6252
where line 5 is greater than $150,000,
figure the Schedule K-1 deferred
obligation as follows.
• Line (4) from the list above, less the
sum of lines (7) and (8). This equals
the Schedule K deferred obligation.
• Multiply the Schedule K deferred
obligation by the shareholder's current
year allocation percentage. This
equals the shareholder's share of the
deferred obligation.
Report the interest on Schedule 2
(Form 1040), line 15. See section
453A(c) for details on how to figure
the interest.

the amount of tax and interest and
“CCF.” See Pub. 595 for details.
Code R. Depletion information—Oil
and gas. This is your share of gross
income from the property, share of
production for the tax year, and other
information needed to figure your
depletion deduction for oil and gas
wells. The corporation should also
allocate to you a proportionate share
of the adjusted basis of each
corporate oil or gas property. See
Pub. 535 for details on how to figure
your depletion deduction.
Reduce the basis of your stock by
the amount of this deduction up to the
extent of your adjusted basis in the
property.

DRAFT AS OF
November 18, 2021

Code N. Section 453A(c) information. The corporation will report any
information you need to figure the
interest due under section 453A(c)
with respect to certain installment
sales. This information shall include
the following from each Form 6252
where line 5 is greater than $150,000.
1. Description of property.
2. Date acquired.
3. Date property sold.
4. Selling price, including
mortgages and other debts (not
including interest, whether stated or
unstated), less mortgages, debts, and
other liabilities the buyer assumed or
took the property subject to.
5. Gross profit.
6. Gross profit percentage.
7. Contract price less (4) above,
plus payments received during the
year, not including interest, whether
stated or unstated.
8. Payments received in prior
years, not including interest whether
stated or unstated.

Code P. Interest allocable to production expenditures. The
corporation will report any information
you need relating to interest you are
required to capitalize under section
263A for production expenditures.
See Regulations sections 1.263A-8
through 1.263A-15 for details.
Code Q. CCF nonqualified withdrawals. The corporation will report
your share of nonqualified
withdrawals from a capital
construction fund (CCF). These
withdrawals are taxed separately from
your other gross income at the highest
marginal ordinary income or capital
gains tax rate. Attach a statement to
your federal income tax return to show
your computation of both the tax and
interest for a nonqualified withdrawal.
Include the tax and interest on
Schedule 2 (Form 1040), line 21. In
the space to the left of line 21, enter

Instructions for Schedule K-1 (Form 1120-S) (2021)

-15-

Codes S and T. Reserved for future
use.

Code U. Net investment income.
The corporation may use code U to
report information you may need to
determine your net investment income
tax under section 1411, including
information regarding income from
controlled foreign corporations
(CFCs) and passive foreign
investment companies (PFICs), the
stock of which is owned by the
corporation. Any information not
provided elsewhere on Schedule K-1
(or an attachment to Schedule K-1) is
provided using code U. For CFCs and
PFICs that you treat as qualified
electing funds (QEFs), the information
that is relevant to you will depend on
whether you, the corporation, or a
subsidiary pass-through entity has
made an election under Regulations
section 1.1411-10(g) with respect to
the CFC or QEF. For example, if the
corporation made an election under
Regulations section 1.1411-10(g) for
a CFC, the stock of which is owned by
the corporation, and the relevant
income and deduction items derived
from that CFC are reported elsewhere
on Schedule K-1, you will not need
the information provided using code U
to complete your Form 8960.
Follow the Instructions for Form
8960 to figure and report your net
investment income and adjusted
gross income or modified adjusted
gross income. See Regulations
sections 1.1411-1 through 1.1411-10
for more details.
Code V. Section 199A information.
Generally, you may be allowed a
deduction of up to 20% of your net

qualified business income (QBI) plus
20% of your qualified REIT dividends,
also known as section 199A
dividends, and qualified publicly
traded partnership (PTP) income from
your S corporation. The S corporation
will provide the information you need
to figure your deduction. You will use
one of these two forms to figure your
QBI deduction.
1. Use Form 8995, Qualified
Business Income Deduction
Simplified Computation, if:
a. You have QBI, section 199A
dividends, or PTP income (defined
below);
b. Your 2021 taxable income
before the QBI deduction is equal to
or less than $164,900 ($164,925 if
married filing separately; $329,800 if
married filing jointly); and
c. You aren’t a patron in a
specified agricultural or horticultural
cooperative.
2. Use Form 8995-A, Qualified
Business Income Deduction, if you
don’t meet all three of these
requirements.

Unadjusted basis immediately
after acquisition (UBIA) of
qualified property. The amounts
reported reflect your pro rata share of
the S corporation’s UBIA of qualified
property of each qualified trade or
business, or aggregation. See the
instructions for Form 8995 or Form
8995-A.

Codes W through Z. Reserved for
future use.
Code AA. Excess taxable income.
If the S corporation is required to file
Form 8990, Limitation on Business
Interest Expense Under Section
163(j), it may determine it has excess
taxable income. Report this amount of
excess taxable income on Form 8990,
Schedule B, line 45(c), if you are
required to file Form 8990. See the
Instructions for Form 8990 for details.

DRAFT AS OF
November 18, 2021
QBI pass-through entity
reporting information. Use the
information provided to you by your S
corporation to complete the
appropriate form identified above.
QBI or qualified PTP items
subject to shareholder-specific
determinations. The amounts
reported to you reflect your pro rata
share of items from the S
corporation’s trade(s) or business(es),
or aggregation(s), and may include
items that aren’t includible in your
calculation of the QBI deduction.
When determining QBI or qualified
PTP income, you must include only
those items that are qualified items of
income, gain, deduction, and loss
included or allowed in determining
taxable income for the tax year. To
determine your QBI or your qualified
PTP income amounts and for
information on where to report them,
see the instructions for Form 8995 or
Form 8995-A.
W-2 wages. The amounts
reported reflect your pro rata share of
the S corporation’s W-2 wages
allocable to the QBI of each qualified
trade or business, or aggregation. See
the instructions for Form 8995 or Form
8995-A.

Section 199A dividends. The
amount reported reflects your pro rata
share of the S corporation’s net
section 199A dividends. See the
instructions for Form 8995 or Form
8995-A.

Patrons of specified agricultural
and horticultural cooperatives. If
the S corporation was a patron of an
agricultural or horticultural cooperative
(specified cooperative), you must use
Form 8995-A to figure your QBI
deduction. In addition, you must
complete Schedule D (Form 8995-A),
Special Rules for Patrons of
Agricultural or Horticultural
Cooperatives, to determine your
patron reduction.

QBI items allocable to qualified
payments from specified
cooperatives subject to
shareholder-specific
determinations. The amounts
reported to you reflect your pro rata
share of items from the S
corporation’s trade(s) or business(es),
or aggregation(s), and include items
that may not be includible in your
calculation of the QBI deduction and
patron reduction. When determining
QBI items allocable to qualified
payments, you must include only
qualified items that are included or
allowed in determining taxable
income for the tax year. To determine
your QBI items allocable to qualified
payments, see the Instructions for
Form 8995-A.
W-2 wages allocable to qualified
payments from specified
cooperatives. The amounts reported
reflect your pro rata share of the S
corporation’s W-2 wages allocable to
qualified payments of each qualified
trade or business, or aggregation. See
the Instructions for Form 8995-A.
Section 199A(g) deduction from
specified cooperatives. The
amount reported reflects your pro rata
share of the S corporation’s net
section 199A(g) deduction. See the
Instructions for Form 8995-A.
-16-

Code AB. Excess business interest
income. If the S corporation is
required to file Form 8990, it may
determine it has excess business
interest income. Report this amount of
excess business interest income on
Form 8990, Schedule B, line 45(d), if
you are required to file Form 8990.
See the Instructions for Form 8990 for
details.
Code AC. Gross receipts for section 448(c) Use the gross receipts
amount to figure the business interest
expense you can deduct, if
applicable. See section 163(j) and the
Instructions for Form 8990 for details.
Code AD. Other information. The
corporation will use code AD to report
the following to shareholders.
1. Any information you need to
complete a disclosure statement for
reportable transactions in which the
corporation participates. If the
corporation participates in a
transaction that must be disclosed on
Form 8886, Reportable Transaction
Disclosure Statement, both you and
the corporation may be required to file
Form 8886 for the transaction. The
determination of whether you are
required to disclose a transaction of
the corporation is based on the
category(ies) under which the
transaction qualifies for disclosure
and is determined by you and the
corporation. You may have to pay a
penalty if you are required to file Form
8886 and don't do so. See the
Instructions for Form 8886 for details.
2. Gross farming and fishing
income. If you are an individual
shareholder, report this income, as an
item of information, on Schedule E
(Form 1040), Part V, line 42. Don't
report this income elsewhere on Form
1040 or 1040-SR.
For a shareholder that is an estate
or trust, report this income to the

Instructions for Schedule K-1 (Form 1120-S) (2021)

beneficiaries, as an item of
information, on Schedule K-1 (Form
1041). Don't report it elsewhere on
Form 1041.
3. Excess business loss limitation.
If the corporation has deductions
attributable to a business activity, it
will provide a statement showing the
aggregate gross income or gain and
the aggregate deductions from the
business activity that you need to
figure any excess business loss
limitation. See section 461 and the
Instructions for Form 461 for details.
4. The amount included in gross
income with respect to qualified zone
academy bonds issued before
October 4, 2008. Income with respect
to these qualified zone academy
bonds can't be used to increase your
stock basis. Because this amount is
already included in income elsewhere
on Schedule K-1, you must reduce
your stock basis by this amount. See
Form 7203, line 13.
5. The amount included in gross
income with respect to clean
renewable energy bonds. Income with
respect to clean renewable energy
bonds can't be used to increase your
stock basis. Because this amount is
already included in income elsewhere
on Schedule K-1, you must reduce
your stock basis by this amount. See
Form 7203, line 13.

6. Qualified investment in
qualifying advanced coal project
property. Use the amounts the
corporation provides you to figure the
amounts to report on Form 3468, lines
5a, 5b, and 5c.
7. Qualified investment in
qualifying gasification property. Use
the amounts the corporation provides
you to figure the amounts to report on
Form 3468, lines 6a and 6b.
8. Qualified investment in
qualifying advanced energy project
credit property. Use the amounts the
corporation provides you to figure the
amount to report on Form 3468, line 7.
9. Inversion gain. The corporation
will provide a statement showing the
amounts of each type of income or
gain that is included in inversion gain.
The corporation has included
inversion gain in income elsewhere on
Schedule K-1. Inversion gain is also
reported under code AD because your
taxable income and alternative
minimum taxable income can't be less
than the inversion gain. Also, your
inversion gain (a) isn't taken into
account in figuring the net operating
loss (NOL) for the tax year or the NOL
that can be carried over to each tax
year, (b) may limit your credits, and
(c) is treated as income from sources
within the United States for the foreign

tax credit. See section 7874 for
details.
10. Any other information you may
need to file your return not shown
elsewhere on Schedule K-1.
The corporation should give you a
description and the amount of your
share for each of these items.

DRAFT AS OF
November 18, 2021

Instructions for Schedule K-1 (Form 1120-S) (2021)

-17-

Box 18. More Than One Activity
for At-Risk Purposes
When the corporation has more than
one activity for at-risk purposes, it will
check this box and attach a
statement. Use the information in the
attached statement to correctly
determine your at-risk limitations. For
more information, see At-Risk
Limitations, earlier.

Box 19. More Than One Activity
for Passive Activity Purposes
When the corporation has more than
one activity for passive activity
purposes, it will check this box and
attach a statement. Use the
information in the attached statement
to correctly determine your passive
activity limitations. For more
information, see Passive Activity
Limitations, earlier.

List of Codes
This list identifies the codes
used on Schedule K-1 for
all shareholders. For
detailed reporting and filing
information, see the specific
line instructions, earlier, and
the instructions for your
income tax return.

M

Box 10. Other income
(loss)

N
O

Code
A Other portfolio income
(loss)
B Involuntary conversions
C Section 1256 contracts
& straddles
D Mining exploration costs
recapture
E Section 951A(a) income
inclusions
F Inclusions of subpart F
income
G Section 951(a)(1)(B)
inclusions
H Other income (loss)

P
Q
R
S

I
J

Deductions—royalty
income
Section 59(e)(2)
expenditures
Reserved for future use
Deductions—portfolio
(other)
Preproductive period
expenses
Reserved for future use
Reforestation expense
deduction
Reserved for future use
Reserved for future use
Reserved for future use
Other deductions

P

Other credits

Box 15. Alternative minimum tax (AMT) items

G
H

Recapture of investment
credit
Recapture of other
credits
Look-back
interest—completed
long-term contracts
Look-back
interest—income
forecast method
Dispositions of property
with section 179
deductions
Recapture of section
179 deduction
Section 453(l)(3)
information
Section 453A(c)
information
Section 1260(b)
information
Interest allocable to
production expenditures
CCF nonqualified
withdrawals
Depletion
information—oil and gas
Reserved for future use
Reserved for future use
Net investment income
Section 199A
information
Reserved for future use
Reserved for future use
Reserved for future use
Reserved for future use
Excess taxable income
Excess business
interest income
Gross receipts for
section 448(c)
Other information

DRAFT AS OF
November 18, 2021
Box 12. Other deductions
A
B
C
D
E
F
G
H

Cash contributions
(60%)
Cash contributions
(30%)
Noncash contributions
(50%)
Noncash contributions
(30%)
Capital gain property to
a 50% limit organization
(30%)
Capital gain property
(20%)
Contributions (100%)
Investment interest
expense

K
L

Box 13. Credits
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O

Reserved for future use
Reserved for future use
Low-income housing
credit (section 42(j)(5))
from post-2007 buildings
Low-income housing
credit (other) from
post-2007 buildings
Qualified rehabilitation
expenditures (rental real
estate)
Other rental real estate
credits
Other rental credits
Undistributed capital
gains credit
Biofuel producer credit
Work opportunity credit
Disabled access credit
Empowerment zone
employment credit
Credit for increasing
research activities
Credit for employer
social security and
Medicare taxes
Backup withholding

A

B
C

D
E
F

Post-1986 depreciation
adjustment
Adjusted gain or loss
Depletion (other than oil
& gas)
Oil, gas, &
geothermal—gross
income
Oil, gas, &
geothermal—deductions
Other AMT items

Box 16. Items affecting
shareholder basis
A
B
C
D
E
F

Tax-exempt interest
income
Other tax-exempt
income
Nondeductible expenses
Distributions
Repayment of loans
from shareholders
Foreign taxes paid or
accrued

Box 17. Other information
A
B
C
D
E
F

-18-

Investment income
Investment expenses
Qualified rehabilitation
expenditures (other than
rental real estate)
Basis of energy property
Recapture of
low-income housing
credit (section 42(j)(5))
Recapture of
low-income housing
credit (other)

I

J

K
L

M
N
O
P
Q
R
S
T
U
V

W
X
Y
Z
AA
AB
AC
AD