DATA-ENTRY EXAMPLES FOR AT-RISK ACTIVITIES UltraTax/1040

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Cody Fisher
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1 DATA-ENTRY EXAMPLES FOR AT-RISK ACTIVITIES UltraTax/1040 Introduction... 1 Forms and schedules... 2 At-Risk Limitation and Allocation Worksheets... 2 Example 1 Current-year loss limited... 2 Results... 2 Example 2 Prior-year at-risk carryovers... 3 Results... 3 Example 3 Negative at-risk recapture... 3 Results... 3 Figure 1: Example 1 Screen C... 5 Figure 2: Example 1 Screen C Figure 3: Example 1 Screen Figure 4: Example 1 Schedule C, Page Figure 5: Example 1 Form Figure 6: Example 1 At-Risk Allocation Worksheet Figure 7: Example 2 Screen F Figure 8: Example 2 Screen F Figure 9: Example 2 Screen Figure 10: Example 2 Schedule F Figure 11: Example 2 Form Figure 12: Example 2 At-Risk Allocation Worksheet Figure 13: Example 3 Screen K Figure 14: Example 3 Screen Figure 15: Example 3 Form Figure 16: Example 3 Schedule E, Page Figure 17: Example 3 K-1 Reconciliation Worksheet Figure 18: Example 3 Schedule D, Page Figure 19: Example 3 Form Figure 20: Example 3 At-Risk Allocation Worksheet Introduction Use the topical information and procedural examples in this document to process at-risk activities. This document addresses the forms, schedules, and worksheets used to report at-risk activities in UltraTax CS. It is designed to help you review where to use at-risk amounts in UltraTax CS, learn how to enter Data-Entry Examples for At-Risk Activities: UltraTax/1040 TL Copyright by Thomson Reuters. All rights reserved. Page 1

2 carryovers, and learn about UltraTax CS behavior under various tax scenarios. The following examples illustrate some basic at-risk activity data entry and list the corresponding output produced by UltraTax CS. Forms and schedules UltraTax CS automatically combines information you enter throughout the return and determines the allowed losses for an activity. UltraTax CS reports at-risk activity amounts on Schedules C, E, and F, and Form 4835, or as adjustment amounts that transfer to Form 4797 or Form UltraTax CS reports recapture at-risk amounts on Form 1040, line 21, Other income and reports alternative minimum tax loss limitation adjustments on Form At-Risk Limitation and Allocation Worksheets UltraTax CS produces non-submittable worksheets to support at-risk activities. If the losses from the activity are limited by at-risk rules, the At-Risk Allocation Worksheets provide a detailed audit trail showing the loss allowed and disallowed by each income and deduction type. Example 1 Current-year loss limited This example illustrates data entry for a taxpayer with a Schedule C activity that is partially at risk. The taxpayer made a cash contribution of $125,000 to the activity and withdrew $40,000 of property during the current year. In addition, the activity had $100,000 loss in the current year. 1. Click the Business folder. 2. Enter general information, business income, and expenses for the business activity in Screens C and C-2 (Figures 1 and 2). 3. Click the 6198 tab. 4. Enter the at-risk information in Screen You can enter increases and decreases to at-risk in this screen (Figure 3). Results UltraTax CS generates Schedule C, Page 1 (Figure 4), Form 6198 (Figure 5), and the At-Risk Allocation Worksheet (Figure 6) for this activity. Form 6198 shows the current-year loss as well as current-year increases and decreases in at risk from the activity to determine the amount at risk. After UltraTax CS determines the amount at risk, it calculates a deductible loss. After UltraTax CS determines the deductible loss amount, the amount is reported on Schedule C, line 31. In addition, Loss limited by amount at risk prints at the bottom of Schedule C (Figure 4). Because the current-year loss has been limited to the amount at risk, the At-Risk Allocation Worksheet (Figure 6) shows the suspended at-risk losses that will be carried over to next year. UltraTax CS will proforma these amounts to next year s return. TL Page 2 Data-Entry Examples for At-Risk Activities: UltraTax/1040 Copyright by Thomson Reuters. All rights reserved.

3 Example 2 Prior-year at-risk carryovers This example illustrates the required data entry and results for a client who has a prior-year at-risk carryover of $3,409. UltraTax CS performs the at-risk carryover calculation and reports the carryover on Schedule F. 1. Click the Farm folder. 2. Enter general information as well as farm income and expenses for the farm activity in Screens F and F-2 (Figures 7 and 8). 3. Click the 6198 tab. 4. Enter the at-risk information. You can also enter at-risk carryover amounts in this screen (Figure 9). Results UltraTax CS generates Schedule F (Figure 10), Form 6198 (Figure 11), and the At-Risk Allocation Worksheet (Figure 12) for this activity. UltraTax CS reports the at-risk carryover from the prior year as an other expense on Schedule F, line 32 (Figure 10). Form 6198 (Figure 11) shows that the activity has a current-year profit as well as the amount at risk. Because the activity has an overall profit, there is no loss to limit in the current year. The At-Risk Allocation Worksheet (Figure 12) shows the prior-year suspended amount of operating loss and the current-year amount allowed. UltraTax CS automatically proformas any amount disallowed in the current year to the next year. Example 3 Negative at-risk recapture This example illustrates the data entry and results for a client with a partnership that has an ordinary loss and a short-term capital loss, and negative at-risk due to decreases in at-risk for the current year. UltraTax CS automatically calculates the amount of negative at-risk to be recaptured in the current year. 1. Click the K1 1065, 1120S folder. 2. Enter general information, pass-through income or loss, and expenses for the partnership activity in Screen K1 (Figure 13). 3. Click the 6198 tab. 4. Enter the at-risk information. You can also enter at-risk recapture limit and amounts previously included in gross income in this screen (Figure 14). Results UltraTax CS generates Form 1040 (Figure 15); Schedule E, Page 2 (Figure 16); the K-1 Reconciliation Worksheet (Figure 17); Schedule D, Page 1 (Figure 18); Form 6198 (Figure 19); and the At-Risk Allocation Worksheet (Figure 20). Data-Entry Examples for At-Risk Activities: UltraTax/1040 TL Copyright by Thomson Reuters. All rights reserved. Page 3

4 Form 6198 (Figure 19) shows that the activity has a negative amount at risk and may be subject to the recapture rules. After UltraTax CS determines the amount of prior-year losses that are recognized as income due to the reductions in the amount at risk to less than zero for this activity, it reports the amount to be recaptured on Form 1040, line 21. UltraTax CS produces a diagnostic indicating any activity that has negative at-risk. Schedule E, Page 2 (Figure 16) shows that the loss is limited due to at-risk rules. Form 1040 (Figure 15) shows the amount of recapture as other income on line 21. The amount is limited to the recapture limit less any amounts previously included in gross income. UltraTax CS automatically proformas remaining losses to be recaptured. The K-1 Reconciliation Worksheet (Figure 17) shows the amount of current-year operating loss limited by at-risk rules and the amount, if any, you should report on the tax return. The At-Risk Allocation Worksheet (Figure 20) shows the amount of current-year operating and Schedule D loss to suspend until next year (Figure 18). TL Page 4 Data-Entry Examples for At-Risk Activities: UltraTax/1040 Copyright by Thomson Reuters. All rights reserved.

Figure 16: Example 3 Schedule E, Page 2 TL 25611 Page 20 Data-Entry Examples for

Figure 17: Example 3 K-1 Reconciliation Worksheet Data-Entry Examples for At-Risk