Part II. Information About the Shareholder
Instruction 1120-S — Instructions for Form 1120-S, U.S. Income Tax Return for an S Corporation · 2026-10-03 edition · updated 2026-10-04 · United States
Specific Instructions (Schedules K and K-1, Part III)¶
Income (Loss)
Reminder. Before entering income items on Schedule K or K-1, reduce each item of passive investment income (within the meaning of section 1362(d)(3)(C)) by its proportionate share of the net passive income tax (Form 1120-S, page 1, line 23a).
Line 1. Ordinary Business Income (Loss)
Basis in the stock of the corporation and in any indebtedness of the corporation to the shareholders (section 1366(d)),
At-risk limitations, and
Passive activity limitations.
Enter the amount from Form 1120-S, page 1, line 22. Enter the income (loss) without reference to the shareholder’s:
| a | b | c (a × b) | ||
|---|---|---|---|---|
| % of total stock owned |
% of tax year held | % of ownership for the year |
% of ownership for the year |
|
| A | 50 40 |
50 50 |
25 + 20 |
45 |
| B | 50 40 |
50 50 |
25 + 20 |
45 |
| C | 20 | 50 | 10 | 10 |
| Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
100% |
- Each shareholder’s pro rata share items are generally figured by multiplying the Schedule K amount by the percentage in item G. However, if a shareholder terminated the shareholder’s entire interest in the corporation during the year or a qualifying disposition took place, the corporation may elect to allocate income and expenses, etc., as if the tax year consisted of 2 tax years, the first of which ends on the day of the termination or qualifying disposition. See Special Rules, earlier, for more details.
Item H
Report the number of shares for purposes of allocating items of income, loss, or deduction at the beginning and end of the S corporation’s tax year. An entity without stock, such as an LLC, should enter the number of units or other equivalent to S corporation stock (including ownership percentages). Round the number of shares to the nearest whole number (but not below zero). For example, round 0.6315 up to 1.
Example. If shareholders X and Y each owned 50 shares for the entire tax year, enter 50 in item H for both the beginning and ending amounts for each shareholder. However, if A and B each owned 50 shares of stock for the first half of the tax year and C purchased 10 shares of A’s and B’s stock during the year, A’s
These limitations, if applicable, are determined at the shareholder level.
Line 1 shouldn’t include rental activity income (loss) or portfolio income (loss).
Schedule K-1. Enter each shareholder’s pro rata share of ordinary business income (loss) in box 1 of Schedule K-1. Identify on statements attached to Schedule K-1 any additional information the shareholder needs to correctly apply the passive activity limitations. For example, if the corporation has more than one trade or business activity, identify the amount from each activity. See Passive Activity Reporting Requirements , earlier.
Line 2. Net Rental Real Estate Income (Loss)
Enter the net income (loss) from rental real estate activities of the corporation from Form 8825. Attach the form to Form 1120-S.
Schedule K-1. Enter each shareholder’s pro rata share of net rental real estate income (loss) in box 2 of Schedule K-1. Identify on statements attached to Schedule K-1 any additional information the shareholder needs to correctly apply the passive activity limitations. For example, if the corporation has more than one rental real estate activity, identify the amount from each activity. Also, for example, identify certain items from any rental real estate activities that may be subject to the recharacterization rules. See Passive Activity Reporting Requirements, earlier.
Line 3. Other Net Rental Income (Loss)
Enter on line 3a gross income from rental activities other than those reported on Form 8825. Include on line 3a gain (loss) from Form 4797, line 17, that is attributable to the sale, exchange, or
Instructions for Form 1120-S (2025) 27
involuntary conversion of an asset used in a rental activity other than a rental real estate activity.
Enter on line 3b the deductible expenses of the activity. Attach a statement of these expenses to Form 1120-S.
Enter on line 3c the net income (loss).
See Rental Activities , earlier, and Pub. 925, for more information on rental activities.
Schedule K-1. Enter in box 3 of Schedule K-1 each shareholder’s pro rata share of other net rental income (loss) reported on line 3c of Schedule K. Identify on statements attached to Schedule K-1 any additional information the shareholder needs to correctly apply the passive activity limitations. For example, if the corporation has more than one rental activity reported in box 3, identify the amount from each activity. See Passive Activity Reporting Requirements , earlier.
Portfolio Income
See Portfolio Income, earlier, for a definition of portfolio income.
Don’t reduce portfolio income by deductions allocated to it. Report such deductions (other than interest expense) on line 12e of Schedule K. Report each shareholder’s pro rata share of deductions in box 12 of Schedule K-1 using codes I or L.
Interest expense allocable to portfolio income is generally investment interest expense reported on line 12c of Schedule K. Report each shareholder’s pro rata share of interest expense allocable to portfolio income in box 12 of Schedule K-1 using code H.
Line 4. Interest Income
Enter only taxable portfolio interest on this line. Taxable interest is interest from all sources except interest exempt from tax and interest on tax-free covenant bonds.
Schedule K-1. Enter each shareholder’s pro rata share of interest income in box 4 of Schedule K-1.
Line 5a. Ordinary Dividends
Enter only taxable ordinary dividends on line 5a, including any qualified dividends reported on line 5b. An S corporation that directly or indirectly (through pass-through entities only) owns (within the meaning of section 958(a)) stock in a foreign corporation may have income inclusions (for example, subpart F income and GILTI inclusions) with respect to the foreign corporation and, as a result, previously taxed earnings and profits (PTEP) in annual PTEP accounts with respect to the foreign corporation. Do not include ordinary dividends or qualified dividends received from a foreign corporation to the extent that they are attributable to PTEP in annual PTEP accounts of the S corporation with respect to the foreign corporation. See Notice 2019-01. The amount by which ordinary dividends and qualified dividends are attributable to PTEP in annual PTEP accounts of a person other than the S corporation (for example, a shareholder) is not relevant for purposes of determining the ordinary dividends to be entered on line 5a.
Note: An annual PTEP account of the S corporation is different than the shareholders’ undistributed taxable income previously taxed account, as discussed in the instructions to Schedule M-2, column (b).
Schedule K-1. Enter each shareholder’s pro rata share of ordinary dividends in box 5a of Schedule K-1.
Line 5b. Qualified Dividends
Enter qualified dividends on line 5b. Except as provided below, qualified dividends are dividends received from domestic corporations and qualified foreign corporations. Do not include qualified dividends to the extent that they are attributable to PTEP in annual PTEP accounts of the S corporation. See Notice 2019-01. The amount by which qualified dividends are attributable to PTEP in annual PTEP accounts of a person other than the S corporation (for example, a shareholder) is not relevant for purposes of determining the qualified dividends to be entered on line 5b.
Note: An annual PTEP account of the S corporation is different than the shareholders’ undistributed taxable income previously taxed account, as discussed in the instructions to Schedule M-2, column (b).
Exceptions. The following dividends aren’t qualified dividends.
Dividends the corporation received on any share of stock held for less than 61 days during the 121-day period that began 60 days before the ex-dividend date. When determining the number of days the corporation held the stock, don’t count certain days during which the corporation’s risk of loss was diminished. The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock isn’t entitled to receive the next dividend payment. When counting the number of days the corporation held the stock, include the day the corporation disposed of the stock but not the day the corporation acquired it.
Dividends attributable to periods totaling more than 366 days that the corporation received on any share of preferred stock held for less than 91 days during the 181-day period that began 90 days before the ex-dividend date. When determining the number of days the corporation held the stock, don’t count certain days during which the corporation’s risk of loss was diminished. Preferred dividends attributable to periods totaling less than 367 days are subject to the 61-day holding period rule above.
Dividends that relate to payments that the corporation is obligated to make with respect to short sales or positions in substantially similar or related property.
Dividends paid by a regulated investment company that aren’t treated as qualified dividend income under section 854.
Dividends paid by a real estate investment trust that aren’t treated as qualified dividend income under section 857(c).
See Pub. 550, Investment Income and Expenses, for more details.
Qualified foreign corporation. A foreign corporation is a qualified foreign corporation if it is:
- Incorporated in a territory of the United States, or
- Eligible for benefits of a comprehensive income tax treaty with the United States that the Secretary determines is satisfactory for this purpose and that includes an exchange of information program. See Notice 2011-64, 2011-37 I.R.B. 231, for details.
If the foreign corporation doesn’t meet either (1) or (2), then it may be treated as a qualified foreign corporation for any dividend paid by the corporation if the stock associated with the dividend paid is readily tradable on an established securities market in the United States.
However, qualified dividends don’t include dividends paid by an entity that was a passive foreign investment company (defined in section 1297) in either the tax year of the distribution or the preceding tax year.
See Notice 2004-71, 2004-45 I.R.B. 793, and Notice 2006-3, 2006-3 I.R.B. 306, for more details.
28 Instructions for Form 1120-S (2025)
Schedule K-1. Enter each shareholder’s pro rata share of qualified dividends in box 5b of Schedule K-1.
Caution: If any amounts from line 5b are from foreign sources, see the instructions for Schedule K-2 (Form 1120-S) and Schedule K-3 (Form 1120-S).
Line 6. Royalties
Enter the royalties received by the corporation.
Schedule K-1. Enter each shareholder’s pro rata share of royalties in box 6 of Schedule K-1.
Line 7. Net Short-Term Capital Gain (Loss)
Enter the gain (loss) that is portfolio income (loss) from Schedule D (Form 1120-S), line 7.
Schedule K-1. Enter each shareholder’s pro rata share of net short-term capital gain (loss) in box 7 of Schedule K-1.
Line 8a. Net Long-Term Capital Gain (Loss)
Enter the gain or loss that is portfolio income (loss) from Schedule D (Form 1120-S), line 15.
Schedule K-1. Enter each shareholder’s pro rata share of net long-term capital gain (loss) in box 8a of Schedule K-1.
Caution: If any gain or loss from line 7 or 15 of Schedule D is from the disposition of nondepreciable personal property used in a trade or business, it may not be treated as portfolio income. Instead, report it on line 10 of Schedule K and report each shareholder’s pro rata share in box 10 of Schedule K-1 using code ZZ.
Line 8b. Collectibles (28%) Gain (Loss)
Figure the amount attributable to collectibles from the amount reported on Schedule D (Form 1120-S), line 15. A collectibles gain (loss) is any long-term gain or deductible long-term loss from the sale or exchange of a collectible that is a capital asset.
Collectibles include works of art, rugs, antiques, metal (such as gold, silver, or platinum bullion), gems, stamps, coins, alcoholic beverages, and certain other tangible property.
Also include gain (but not loss) from the sale or exchange of an interest in a partnership or trust held for more than 1 year and attributable to unrealized appreciation of collectibles. For details, see Regulations section 1.1(h)-1. Also attach the statement required under Regulations section 1.1(h)-1(e).
Schedule K-1. Report each shareholder’s pro rata share of the collectibles (28%) gain (loss) in box 8b of Schedule K-1.
Line 8c. Unrecaptured Section 1250 Gain
The three types of unrecaptured section 1250 gain must be reported separately on an attached statement to Form 1120-S.
From the sale or exchange of the corporation’s business assets. Figure this amount on Form 4797, Part III, for each section 1250 property (except property for which gain is reported using the installment method on Form 6252) for which you had an entry in Form 4797, Part I. Subtract Form 4797, line 26g, from the smaller of line 22 or line 24. Figure the total of these amounts for all section 1250 properties. Generally, the result is the corporation’s unrecaptured section 1250 gain. However, if the corporation is reporting gain on the installment method for a
section 1250 property held more than 1 year, see the next paragraph.
The total unrecaptured section 1250 gain for an installment sale of section 1250 property held more than 1 year is figured in a manner similar to that used in the preceding paragraph. However, the total unrecaptured section 1250 gain must be allocated to the installment payments received from the sale. To do so, the corporation must generally treat the gain allocable to each installment payment as unrecaptured section 1250 gain until all such gain has been used in full. Figure the unrecaptured section 1250 gain for installment payments received during the tax year as the smaller of (a) the amount from Form 6252, line 26 or line 37 (whichever applies), or (b) the total unrecaptured section 1250 gain for the sale reduced by all gain reported in prior years (excluding section 1250 ordinary income recapture).
Caution: If the corporation chose not to treat all of the gain from payments received after May 6, 1997, and before August 24, 1999, as unrecaptured section 1250 gain, use only the amount the corporation chose to treat as unrecaptured section 1250 gain for those payments to reduce the total unrecaptured section 1250 gain remaining to be reported for the sale. See Regulations section 1.453-12.
From the sale or exchange of an interest in a partnership. Also report as a separate amount any gain from the sale or exchange of an interest in a partnership attributable to unrecaptured section 1250 gain. See Regulations section 1.1(h)-1 and attach the statement required under Regulations section 1.1(h)-1(e).
From an estate, trust, REIT, or RIC. If the corporation received a Schedule K-1 or Form 1099-DIV from an estate, a trust, a real estate investment trust (REIT), or a regulated investment company (RIC) reporting “unrecaptured section 1250 gain,” don’t add it to the corporation’s own unrecaptured section 1250 gain. Instead, report it as a separate amount. For example, if the corporation received a Form 1099-DIV from a REIT with unrecaptured section 1250 gain, report it as “Unrecaptured section 1250 gain from a REIT.”
Schedule K-1. Report each shareholder’s pro rata share of unrecaptured section 1250 gain from the sale or exchange of the corporation’s business assets in box 8c of Schedule K-1. If the corporation is reporting unrecaptured section 1250 gain from an estate, trust, REIT, or RIC or from the corporation’s sale or exchange of an interest in a partnership (as explained above), enter “STMT” in box 8c and an asterisk (*) in the left column of the box and attach a statement that separately identifies the amount of unrecaptured section 1250 gain from:
The sale or exchange of the corporation’s business assets;
The sale or exchange of an interest in a partnership; and
An estate, trust, REIT, or RIC.
Caution: If any amounts from line 8c are from foreign sources, see the instructions for Schedule K-2 (Form 1120-S) and Schedule K-3 (Form 1120-S).
Line 9. Net Section 1231 Gain (Loss)
Enter the net section 1231 gain (loss) from Form 4797, line 7.
Don’t include net gain or loss from involuntary conversions due to casualty or theft. Report net loss from involuntary conversions due to casualty or theft on line 10 of Schedule K (box 10, code B, of Schedule K-1). See the instructions for line 10 on how to report net gain from involuntary conversions.
Schedule K-1. Report each shareholder’s pro rata share of net section 1231 gain (loss) in box 9 of Schedule K-1. If the corporation has more than one rental, trade, or business activity, identify on an attachment to Schedule K-1 the amount of section
Instructions for Form 1120-S (2025) 29
1231 gain (loss) from each separate activity. See Passive Activity Reporting Requirements , earlier.
Caution: If any amounts from line 9 are from foreign sources, see the instructions for Schedule K-2 (Form 1120-S) and Schedule K-3 (Form 1120-S).
Line 10. Other Income (Loss)
Enter any other item of income or loss not included on lines 1 through 9. On the line to the left of the entry space for line 10, identify the type of income. If there is more than one type of income, attach a statement to Form 1120-S that separately identifies each type and amount of income for each of the following categories. The codes needed for Schedule K-1 reporting are provided for each category.
Other portfolio income (loss) (code A). Portfolio income not reported on lines 4 through 8.
Report and identify other portfolio income or loss on an attachment for line 10.
If the corporation holds a residual interest in a Real Estate Mortgage Investment Conduit (REMIC), report on an attachment the shareholder’s share of the following.
Taxable income (net loss) from the REMIC (line 1b of Schedule(s) Q (Form 1066), Quarterly Notice to Residual Interest Holder of REMIC Taxable Income or Net Loss Allocation).
Excess inclusion (line 2c of Schedules Q (Form 1066)).
Section 212 expenses (line 3b of Schedules Q (Form 1066)). Because Schedule Q (Form 1066) is a quarterly statement, the corporation must follow the Schedule Q instructions to figure the amounts to report to shareholders for the corporation’s tax year.
Involuntary conversions (code B). Report net loss from involuntary conversions due to casualty or theft. The amount for this item is shown on Form 4684, Casualties and Thefts, line 38a or 38b.
Each shareholder’s pro rata share must be entered on Schedule K-1.
Enter the net gain from involuntary conversions of property used in a trade or business (Form 4684, line 39) on Form 4797, line 3.
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, notify the shareholder. The corporation shouldn’t complete Form 4684 for this type of casualty or theft. Instead, each shareholder will complete the shareholder’s own Form 4684.
Section 1256 contracts and straddles (code C). Report any net gain or loss from section 1256 contracts from Form 6781, Gains and Losses From Section 1256 Contracts and Straddles.
Mining exploration costs recapture (code D). Provide the information shareholders need to recapture certain mining exploration expenditures. See Regulations section 1.617-3.
Section 951A(a) income inclusions (code E). If the S corporation elected to be treated as owning stock of a CFC within the meaning of section 958(a) under Proposed Regulations section 1.958-1(e) and the S corporation is a U.S. shareholder of a CFC, then the S corporation determines its section 951A inclusion amount. Report the corporation’s section 951A inclusion and its shareholders’ pro rata shares of the section 951A inclusions using code E. See Form 8992, U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI), Part II, line 5.
Caution: Provide information on line 10 using code E only if the corporation (and its shareholders, if applicable) has elected to be treated as owning stock of a foreign corporation within the meaning of section 958(a) under Proposed Regulations section 1.958-1(e)(2). If no election has been made, see the instructions for Part V of the Schedule K-2 (Form 1120-S).
Inclusions of subpart F income (code F). The S corporation should report its subpart F income inclusions and its shareholders’ pro rata shares of its subpart F income inclusions. An S corporation does not have subpart F income inclusions with respect to a foreign corporation for tax years of the foreign corporation beginning on or after January 25, 2022, under Regulations section 1.958-1(d)(1) if the S corporation did not make an election to be treated as owning stock of the foreign corporation within the meaning of section 958(a) under Proposed Regulations section 1.958-1(e)(2). An S corporation does not have subpart F income inclusions with respect to a foreign corporation for tax years of the foreign corporation beginning before January 25, 2022, if the S corporation did not make an election to be treated as owning stock of a foreign corporation within the meaning of section 958(a) under Proposed Regulations section 1.958-1(e)(2) and, pursuant to Regulations section 1.958-1(d)(4)(i), applies Regulations section 1.958-1(d)(1) through (3) to such tax years.
Section 951(a)(1)(B) inclusions (code G). The S corporation should report its section 951(a)(1)(B) inclusions and its shareholders’ pro rata shares of its section 951(a)(1)(B) inclusions. An S corporation does not have section 951(a)(1)(B) inclusions with respect to a foreign corporation for tax years of the foreign corporation beginning on or after January 25, 2022, under Regulations section 1.958-1(d)(1) if the S corporation did not make an election to be treated as owning stock of the foreign corporation within the meaning of section 958(a) under Proposed Regulations section 1.958-1(e)(2). An S corporation does not have section 951(a)(1)(B) inclusions with respect to a foreign corporation for tax years of the foreign corporation beginning before January 25, 2022, if the S corporation did not make an election to be treated as owning stock of a foreign corporation within the meaning of section 958(a) under Proposed Regulations section 1.958-1(e)(2) and, pursuant to Regulations section 1.958-1(d)(4)(i), applies Regulations section 1.958-1(d)(1) through (3) to such tax years.
Caution: If the corporation does not have subpart F income inclusions or section 951(a)(1)(B) inclusions with respect to a foreign corporation, stock of which it owns within the meaning of section 958(a) and without regard to Regulations section 1.958-1(d), see the instructions for Part V of the Schedule K-2 (Form 1120-S) for reporting of information related to subpart F income inclusions and section 951(a)(1)(B) inclusions of shareholders with respect to the foreign corporation.
Code H. Reserved for future use.
Gain (loss) from disposition of oil, gas, geothermal, or oth- er mineral properties (code I). Report the following information on a statement attached to Schedule K-1. (a) A description of the property. (b) The shareholder’s share of the amount realized on the sale, exchange, or involuntary conversion of each property (FMV of the property for any other disposition, such as a distribution). (c) The shareholder’s share of the corporation’s adjusted basis in the property (except for oil or gas properties). (d) Total intangible drilling costs, development costs, and mining exploration costs (section 59(e) expenditures) passed through to the shareholder for the property. See Regulations section 1.1254-4 for more information.
Recoveries of tax benefit items (code J). Recoveries of tax benefit items (section 111).
30 Instructions for Form 1120-S (2025)
Gambling gains and losses (code K). Gambling gains and losses subject to the limitations in section 165(d). Indicate on an attached statement whether or not the corporation is in the trade or business of gambling.
Code L. Reserved for future use.
Gain eligible for section 1045 rollover (replacement stock purchased by the corporation) (code M). Include only gain from the sale or exchange of qualified small business (QSB) stock (as defined in the Instructions for Schedule D) that was deferred by the corporation under section 1045 and reported on Schedule D. See the Instructions for Schedule D for more details. Additional limitations apply at the shareholder level. Report each shareholder’s share of the gain eligible for section 1045 rollover on Schedule K-1. Each shareholder will determine if they qualify for the rollover. Report on an attachment to Schedule K-1 for each sale or exchange (a) the name of the corporation that issued the QSB stock, (b) the shareholder’s pro rata 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.
Gain eligible for section 1045 rollover (replacement stock not purchased by the corporation) (code N). Include only gain from the sale or exchange of QSB stock (as defined in the Instructions for Schedule D) the corporation held for more than 6 months but that wasn’t deferred by the corporation under section 1045. See the Instructions for Schedule D for more details. A shareholder may be eligible to defer the shareholder’s pro rata share of this gain under section 1045 if the shareholder purchases other QSB stock during the 60-day period that began on the date the QSB stock was sold by the corporation. Additional limitations apply at the shareholder level. Report on an attachment to Schedule K-1 for each sale or exchange (a) the name of the corporation that issued the QSB stock, (b) the shareholder’s pro rata 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.
Sale or exchange of QSB stock with section 1202 exclusion (code O). Gain from the sale or exchange of QSB stock (as defined in the Instructions for Schedule D) that is eligible for the section 1202 exclusion. The section 1202 exclusion applies only to QSB stock held by the corporation for more than 5 years. Additional limitations apply at the shareholder level. Report each shareholder’s share of section 1202 gain on Schedule K-1. Each shareholder will determine if they qualify for the exclusion. Report on an attachment to Schedule K-1 for each sale or exchange (a) the name of the corporation that issued the QSB stock, (b) the shareholder’s pro rata 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.
Codes P through R. Reserved for future use.
Non-portfolio capital gain (loss) (code S). Any gain or loss from line 7 or 15 of Schedule D that isn’t portfolio income (for example, gain or loss from the disposition of nondepreciable personal property used in a trade or business).
Codes T through X. Reserved for future use.
Other income (loss) (code ZZ). Include any other type of income (loss) not reported using codes A through S.
Schedule K-1. Enter each shareholder’s pro rata share of the other income categories listed above in box 10 of Schedule K-1. Enter the applicable code A through ZZ (as shown earlier).
If you are reporting each shareholder’s pro rata share of only one type of income under code ZZ, enter the code with an asterisk (ZZ*) and the dollar amount in the entry space in box 10 and attach a statement that shows “Box 10, code ZZ” and the type of income. If you are reporting multiple types of income
under code ZZ, enter the code with an asterisk (ZZ*) and enter “STMT” in the entry space in box 10 and attach a statement that shows “Box 10, code ZZ” and the dollar amount of each type of income.
If the corporation has more than one trade or business or rental activity (for codes B through ZZ), identify on an attachment to Schedule K-1 the amount from each separate activity. See Passive Activity Reporting Requirements , earlier.
Deductions
Line 11. Section 179 Deduction
A corporation can elect to expense part or all of the cost of certain property the corporation purchased during the tax year for use in its trade or business or certain rental activities. See Pub. 946 for a definition of what kind of property qualifies for the section 179 expense deduction and the Instructions for Form 4562 for limitations on the amount of the section 179 expense deduction.
Complete Form 4562, Part I, to figure the corporation’s section 179 expense deduction. The corporation doesn’t take the deduction itself but instead passes it through to the shareholders. Attach Form 4562 to Form 1120-S and show the total section 179 expense deduction on Schedule K, line 11.
Although the corporation can’t take the section 179 deduction, it must generally still reduce the basis of the asset by the amount of the section 179 deduction it elected, regardless of whether any shareholder can use the deduction. However, the corporation doesn’t reduce the basis for any section 179 deduction allocable to a trust or estate because they aren’t eligible to take the section 179 deduction. See Regulations section 1.179-1(f).
See the instructions for Schedule K, line 17d, for sales or other dispositions of property for which a section 179 deduction has passed through to shareholders and for the recapture rules if the business use of the property dropped to 50% or less.
Schedule K-1. Report each shareholder’s pro rata share of the section 179 expense deduction in box 11 of Schedule K-1.
If the corporation has more than one rental, trade, or business activity, identify on an attachment to Schedule K-1 the amount of section 179 deduction from each separate activity. See Passive Activity Reporting Requirements, earlier.
Don’t complete box 11 of Schedule K-1 for any shareholder that is an estate or trust; estates and trusts aren’t eligible for the section 179 expense deduction.
Line 12a. Cash Charitable Contributions
Cash contributions must be supported by a dated bank record or receipt.
No deduction is allowed for any contribution of $250 or more unless the corporation obtains a written acknowledgment from the charitable organization that shows the amount of cash contributed. The acknowledgment must be obtained by the due date (including extensions) of the corporation’s return or, if earlier, the date the return is filed. Don’t attach the acknowledgment to the tax return but keep it with the corporation’s records.
Enter cash charitable contributions made during the tax year. Attach a statement to Form 1120-S that separately identifies the corporation’s contributions for each applicable code below. See Limits on Deductions in Pub. 526, Charitable Contributions, for
Instructions for Form 1120-S (2025) 31
information on adjusted gross income (AGI) limitations on deductions for charitable contributions.
Cash contributions (60%) (code A). Enter cash contributions subject to the 60% AGI limitation.
Cash contributions (30%) (code B). Enter cash contributions subject to the 30% AGI limitation.
Schedule K-1. Report each shareholder’s pro rata share of cash charitable contributions in box 12 of Schedule K-1 using code A or B, as applicable.
Line 12b. Noncash Contributions
No deduction is allowed for any contribution of $250 or more unless the S corporation obtains a written acknowledgment from the charitable organization that describes the property contributed and gives an estimate of the value of any goods or services provided in return for the contribution. The acknowledgment must be obtained by the due date (including extensions) of the S corporation return or, if earlier, the date the S corporation files its return. Don’t attach the acknowledgment to the S corporation return but keep it with the S corporation’s records. These rules apply in addition to the filing requirements for Form 8283, Noncash Charitable Contributions, described below.
Attach a statement to Form 1120-S that separately identifies the S corporation’s contributions for each of applicable codes C through G. See Limits on Deductions in Pub. 526 for information on AGI limitations on deductions for charitable contributions.
Noncash contributions (50%) (code C). Enter noncash contributions subject to the 50% AGI limitation. Don’t include food inventory contributions reported separately on an attached statement.
Food inventory contributions. Provide the following information on a statement attached to Schedule K-1.
The shareholder’s pro rata share of the amount of the charitable contributions under section 170(e)(3) for qualified food inventory that was donated to charitable organizations for the care of the ill, needy, and infants. The food must meet all the quality and labeling standards imposed by federal, state, and local laws and regulations. The charitable contribution for donated food inventory is the lesser of (a) the basis of the donated food plus half of the appreciation (gain if the donated food were sold at FMV on the date of the gift) or (b) twice the basis of the donated food. The aggregate amount of such contributions shall not exceed 15% of the taxpayer’s aggregate net income from all trades or businesses from which such contributions were made. A corporation that doesn’t account for inventories and isn’t required to capitalize indirect costs under section 263A may elect to treat the basis of the donated food as equal to 25% of the FMV of the food. See section 170(e)(3)(C) for more details.
The shareholder’s pro rata share of the net income for the tax year from the corporation’s trades or businesses that made the contributions of food inventory.
Qualified conservation contributions. The AGI limit for qualified conservation contributions under section 170(h) is generally 50%. However, if the corporation is a qualified farmer or rancher (farm income is more than 50% of gross income), the AGI limit for qualified conservation contributions of property used in agriculture or livestock production (or available for such production) is 100%. The carryover period is 15 tax years. See section 170(b) and Notice 2007-50, 2007-25 I.R.B. 1430, for details. Report qualified conservation contributions with a 50% AGI limitation on Schedule K-1 in box 12 using code C. Report qualified conservation contributions with a 100% AGI limitation on a statement attached to Schedule K-1 using code G. See
Contributions of property, later, for special rules applicable to qualified conservation contributions.
Noncash contributions (30%) (code D). Enter noncash contributions subject to the 30% AGI limitation.
Capital gain property to a 50% limit organization (30%) (code E). Enter capital gain property contributions subject to the 30% AGI limitation.
Capital gain property (20%) (code F). Enter capital gain property contributions subject to the 20% AGI limitation.
Contributions of property. See Contributions of Property in Pub. 526 and Pub. 561, Determining the Value of Donated Property, for information on noncash contributions and contributions of capital gain property. If the deduction claimed for noncash contributions exceeds $500, complete Form 8283 and attach it to Form 1120-S.
Shareholders may deduct their pro rata share of the FMV of property contributions but will only need to adjust their stock basis by their pro rata share of the property’s adjusted basis. Give each shareholder a statement identifying their pro rata share of both the FMV and adjusted basis of the property.
If the corporation made a qualified conservation contribution under section 170(h), also include the FMV of the underlying property before and after the donation, as well as the type of legal interest contributed, and describe the conservation purpose furthered by the donation. Give a copy of this information to each shareholder.
If the corporation made a qualified conservation contribution for the preservation of an historic building, there are additional requirements that may apply to obtain a charitable deduction. This charitable deduction may be reduced if rehabilitation credits were claimed for the historic building. This charitable deduction may be denied if the corporation does not comply with section 170(f)(19). A $500 filing fee may apply to certain deductions over $10,000. See the Instructions for Form 8283 and Pub. 526 for details.
Subject to three exceptions, an S corporation’s charitable conservation contribution (or an S corporation’s distributive share of a charitable conservation contribution from a partnership) is not treated as a qualified conservation contribution if the amount of such contribution exceeds 2.5 times the sum of each ultimate member’s relevant basis (disallowance rule). See the Instructions for Form 8283 and Regulations sections 1.170A-14(j) through (n) for more details and information on the three exceptions.
Relevant basis is with respect to any ultimate member the portion of the ultimate member’s modified basis that is allocable to the portion of the real property with respect to which the qualified conservation contribution is made.
With respect to an S corporation, an ultimate member is a shareholder that receives a pro rata share of a qualified conservation contribution. The shareholder may be allocated the amount from an S corporation that made the contribution (contributing S corporation) or from an S corporation that holds an interest in a partnership that itself made the contribution (contributing partnership) or a partnership (upper-tier partnership) that holds a direct or indirect interest in the contributing partnership.
If the amount of a contributing partnership’s or upper-tier partnership’s qualified conservation contribution equals or is less than 2.5 times the sum of each ultimate member’s relevant basis, then any upper-tier S corporation must still determine whether the disallowance rule applies to its allocated portion of the qualified conservation contribution. Subject to the three exceptions, if an upper-tier S corporation’s allocated portion exceeds 2.5 times the sum of each ultimate member’s relevant basis, the contribution is not treated as a qualified conservation
32 Instructions for Form 1120-S (2025)
contribution with respect to the upper-tier S corporation or any ultimate member. No one may claim a deduction for the allocated portion attributable to that upper-tier S corporation.
In an attachment to each Schedule K-1 issued to a shareholder that is an ultimate member, report the shareholder’s relevant basis. The corporation should coordinate with each shareholder in calculating relevant basis. See Qualified Conservation Contribution in Pub. 526 and Disallowance of deduction for certain qualified conservation contributions by partnerships and S corporations in the Instructions for Form 8283. An accuracy-related penalty may apply in the case of an underpayment of tax attributable to the disallowance of a deduction for a qualified conservation contribution by reason of the disallowance rule. See section 6662(b)(10).
Nondeductible contributions. Certain contributions made to an organization conducting lobbying activities aren’t deductible. See section 170(f)(9) for more details. Also see Contributions You Can’t Deduct in Pub. 526 for more examples of nondeductible contributions.
Caution: An accrual basis S corporation can’t elect to treat a contribution as having been paid in the tax year the board of directors authorizes the payment if the contribution isn’t actually paid until the next tax year.
Contributions (100%) (code G). If the corporation is a qualified farmer or rancher (farm income is more than 50% of gross income), attach a statement to Schedule K-1 that shows the shareholder’s pro rata share of qualified conservation contributions of property used in agriculture or livestock production (or available for such production). Don’t include these contributions in the amounts reported in box 12 of Schedule K-1 because shareholders must separately determine if they qualify for the 50% or 100% AGI limitation for these contributions. The contribution must be subject to a restriction that the property remain available for such production. See section 170(b) for details.
Schedule K-1. Report each shareholder’s pro rata share of charitable contributions in box 12 of Schedule K-1 using codes C through G for each of the contribution categories shown earlier. See Contributions of property , earlier, for information on statements you may be required to attach to Schedule K-1. The corporation must attach a copy of its Form 8283 to the Schedule K-1 of each shareholder receiving an allocation of the contribution deduction shown in Section A or Section B of its Form 8283.
Line 12c. Investment Interest Expense
Include on this line the interest properly allocable to debt on property held for investment purposes. Property held for investment includes property that produces income (unless derived in the ordinary course of a trade or business) from interest, dividends, annuities, or royalties and gains from the disposition of property that produces those types of income or is held for investment.
Investment interest expense doesn’t include interest expense allocable to a passive activity.
Investment income and investment expenses other than interest are reported on lines 17a and 17b, respectively. This information is needed by shareholders to determine the investment interest expense limitation (see Form 4952 for details).
Schedule K-1. Report each shareholder’s pro rata share of investment interest expense in box 12 of Schedule K-1 using code H .
Line 12d. Section 59(e)(2) Expenditures
Generally, section 59(e) allows each shareholder to make an election to deduct their pro rata share of the corporation’s otherwise deductible qualified expenditures ratably over 10 years (3 years for circulation expenditures). The deduction is taken beginning with the tax year in which the expenditures were made (or for intangible drilling and development costs, over the 60-month period beginning with the month in which such costs were paid or incurred).
The term “qualified expenditures” includes only the following types of expenditures paid or incurred during the tax year.
Circulation expenditures.
Research and experimental expenditures.
Intangible drilling and development costs.
Mining exploration and development costs.
If a shareholder makes the election, these items aren’t treated as alternative minimum tax (AMT) tax preference items.
Because the shareholders make this election, the corporation can’t deduct these amounts or include them as AMT items on Schedule K-1. Instead, the corporation passes through the information the shareholders need to figure their separate deductions.
On the dotted line to the left of the entry space for line 12d, enter the type of expenditures claimed on line 12d. Enter on line 12d the qualified expenditures paid or incurred during the tax year for which a shareholder may make an election under section 59(e). Enter this amount for all shareholders whether or not any shareholder makes an election under section 59(e).
On an attached statement, identify the property for which the expenditures were paid or incurred. If the expenditures were for intangible drilling or development costs for oil and gas properties, identify the month(s) in which the expenditures were paid or incurred. If there is more than one type of expenditure or more than one property, provide the amounts (and the months paid or incurred, if required) for each type of expenditure separately for each property.
Schedule K-1. Report each shareholder’s pro rata share of section 59(e) expenditures in box 12 of Schedule K-1 using code J . Identify the following information on an attached statement.
The type of expenditure.
The property for which the expenditures are paid or incurred.
For oil and gas properties only, the month in which intangible drilling costs and development costs were paid or incurred.
If there is more than one type of expenditure or the expenditures are for more than one property, provide each shareholder’s pro rata share of the amounts (and the months paid or incurred for oil and gas properties) for each type of expenditure separately for each property.
Line 12e. Other Deductions
Enter deductions not included on line 11, 12a, 12b, 12c, 12d, or 16f. On the line to the left of the entry space for line 12e, identify the type of deduction. If there is more than one type of deduction, attach a statement to Form 1120-S that separately identifies the type and amount of each deduction for the
Instructions for Form 1120-S (2025) 33
following categories. The codes needed for Schedule K-1 reporting are provided for each category.
Deductions—Royalty income (code I). Enter deductions related to royalty income.
Code K. Reserved for future use.
Deductions—Portfolio income (other) (code L). Enter any other deductions related to portfolio income.
No deduction is allowed under section 212 for expenses allocable to a convention, seminar, or similar meeting. Because these expenses aren’t deductible by shareholders, the corporation doesn’t report these expenses on Schedule K, line 12e. The expenses are nondeductible and are reported as such on Schedule K, line 16c, and in box 16 of Schedule K-1 using code C.
Preproductive period expenses (code M). If the corporation is required to use an accrual method of accounting under section 448(a)(3), it must capitalize these expenses. If the corporation is permitted to use the cash method, enter the amount of preproductive period expenses that qualify under section 263A(d). An election not to capitalize these expenses must be made at the shareholder level. See Uniform Capitalization Rules in Pub. 225.
Code N. Reserved for future use.
Reforestation expense deduction (code O). The corporation can elect to deduct a limited amount of its reforestation expenditures paid or incurred during the tax year. The amount the corporation can elect to deduct is limited to $10,000 for each qualified timber property. See section 194(c) for a definition of reforestation expenditures and qualified timber property. See Notice 2006-47, 2006-20 I.R.B. 892, for details on making the election. The corporation must amortize over 84 months any amount not deducted. See Reforestation expenditures, earlier.
Schedule K-1. Enter the shareholder’s pro rata share of allowable reforestation expense in box 12 of Schedule K-1 using code O and attach a statement that provides a description of the qualified timber property. If the corporation is electing to deduct amounts from more than one qualified timber property, provide a description and the amount for each property.
Codes P through V. Reserved for future use.
Soil and water conservation (code W). Enter amounts for soil and water conservation expenditures and endangered species recovery expenditures. See Pub. 225.
Film, television, theatrical, and sound recording production expenditures (code X). The corporation can elect to deduct certain costs of a qualified film, television, live theatrical, or sound recording production commencing before January 1, 2026 (after December 31, 2015, and before January 1, 2026, for a live theatrical production; and before January 1, 2026, and in a tax year after July 4, 2025, for a qualified sound recording production), limited to $15 million of the aggregate production cost of the production or $150,000 of the aggregate cost of any qualified sound recording production, or on the aggregate, cumulative cost of all such qualified sound recording productions in the tax year. There is a higher dollar limitation for productions in certain areas. A live theatrical performance commences on the date of its first public performance for a paying audience. Provide a description of the film, television, live theatrical, or sound recording production on an attached statement. If the corporation makes the election for more than one production, attach a statement to Schedule K-1 that shows each shareholder’s pro rata share of the qualified expenditures separately for each production. The deduction is subject to recapture under section 1245 if the election is voluntarily revoked or the production fails to meet the requirements for the deduction. See section 181 and the related regulations.
Expenditures for removal of barriers (code Y). Enter expenditures paid or incurred for the removal of architectural and transportation barriers to the elderly and disabled that the corporation has elected to treat as a current expense. See section 190.
Itemized deductions (code Z). Enter amounts paid by the corporation that would be allowed as itemized deductions on any of the shareholders’ income tax returns if they were paid directly by a shareholder for the same purpose. These amounts include, but aren’t limited to, expenses under section 212 for the production of income other than from the corporation’s trade or business. However, don’t enter expenses related to portfolio income or investment interest expense reported on Schedule K, line 12c, on this line.
Contributions to a capital construction fund (CCF) (code AA). Enter amount of contributions made to a capital construction fund. See Pub. 595, Capital Construction Fund for Commercial Fishermen.
Penalty on early withdrawal of savings (code AB). Enter any penalty on early withdrawal of savings because the corporation withdrew funds from its time savings deposit before its maturity.
Interest expense allocated to debt financed distributions (code AC). Enter interest expense allocated to debt-financed distributions. See Notice 89-35, 1989-1 C.B. 675 for more information.
Codes AD through AJ. Reserved for future use.
Other deductions (code ZZ). Include any other deductions not reported using codes A through AC.
Schedule K-1. Enter each shareholder’s pro rata share of the deduction categories listed above in box 12 of Schedule K-1 or provide the required information on an attached statement. Enter the applicable code shown above.
If you are reporting only one type of deduction under code ZZ, enter code ZZ with an asterisk (ZZ*) and the dollar amount in the entry space in box 12 and attach a statement that shows the box number, code, and type of deduction. If you are reporting multiple types of deductions under code ZZ, enter the code with an asterisk (ZZ*), enter “STMT” in the dollar amount entry space in box 12, and attach a statement that shows the box number, code, and dollar amount of each type of deduction.
If the corporation has more than one trade or business activity, identify on an attachment to Schedule K-1 the amount for each separate activity. See Passive Activity Reporting Requirements , earlier.
Credits
Low-Income Housing Credit
Section 42 provides a credit that can be claimed by owners of low-income residential rental buildings. To qualify for the credit, the corporation must file Form 8609, Low-Income Housing Credit Allocation and Certification, separately with the IRS. Don’t attach Form 8609 to Form 1120-S. Complete and attach Form 8586, Low-Income Housing Credit, and Form 8609-A, Annual Statement for Low-Income Housing Credit, to Form 1120-S.
Line 13a. Low-Income Housing Credit (Section 42(j)(5))
If the corporation invested in a partnership to which the provisions of section 42(j)(5) apply, report on line 13a the credit reported to the corporation in box 15 of Schedule K-1 (Form 1065) using code C.
34 Instructions for Form 1120-S (2025)
Schedule K-1. Report in box 13 of Schedule K-1 each shareholder’s pro rata share of the low-income housing credit reported on Schedule K, line 13a. Use code C to report the portion of the credit attributable to buildings placed in service after 2007. If the corporation has credits from more than one activity, identify on an attachment to Schedule K-1 the amount for each separate activity. See Passive Activity Reporting Requirements , earlier.
Line 13b. Low-Income Housing Credit (Other)
Report on line 13b any low-income housing credit not reported on line 13a. This includes any credit reported to the corporation in box 15 of Schedule K-1 (Form 1065) using code D.
Schedule K-1. Report in box 13 of Schedule K-1 each shareholder’s pro rata share of the low-income housing credit reported on Schedule K, line 13b. Use code D to report the portion of the credit attributable to buildings placed in service after 2007. If the corporation has credits from more than one rental activity, identify on an attachment to Schedule K-1 the amount for each separate activity. See Passive Activity Reporting Requirements , earlier.
Line 13c. Qualified Rehabilitation Expenditures (Rental Real Estate)
Enter on line 13c the total qualified rehabilitation expenditures related to rental real estate activities of the corporation. See the Instructions for Form 3468 for details on qualified rehabilitation expenditures.
Schedule K-1. Report each shareholder’s pro rata share of qualified rehabilitation expenditures related to rental real estate activities in box 13 of Schedule K-1 using code E . Attach a statement to Schedule K-1 that provides the information and the shareholder’s pro rata share of the basis and expenditure amounts the shareholder will need to figure the amounts to report in Form 3468, Investment Credit, Part VII. See the Instructions for Form 3468 for details. If the corporation has expenditures from more than one rental real estate activity, identify on an attachment to Schedule K-1 the information and amounts for each separate activity. See Passive Activity Reporting Requirements , earlier.
Caution: Qualified rehabilitation expenditures for property not related to rental real estate activities must be reported in box 17 using code C
Line 13d. Other Rental Real Estate Credits
Enter on line 13d any other credit (other than credits reported on lines 13a through 13c) related to rental real estate activities. On the dotted line to the left of the entry space for line 13d, identify the type of credit. If there is more than one type of credit, attach a statement to Form 1120-S that identifies the type and amount for each credit. These credits may include any type of credit listed in the instructions for line 13g.
Schedule K-1. Report in box 13 of Schedule K-1 each shareholder’s pro rata share of other rental real estate credits using code F . If you are reporting each shareholder’s pro rata share of only one type of rental real estate credit under code F, enter the code with an asterisk (F*) and the dollar amount in the entry space in box 13 and attach a statement that shows “Box 13, code F” and the type of credit. If you are reporting multiple types of rental real estate credit under code F, enter the code with an asterisk (F*) and enter “STMT” in the entry space in box 13 and attach a statement that shows “Box 13, code F” and the dollar amount of each type of credit. If the corporation has
credits from more than one rental real estate activity, identify on the attached statement the amount of each type of credit for each separate activity. See Passive Activity Reporting Requirements , earlier.
Line 13e. Other Rental Credits
Enter on line 13e any other credit (other than credits reported on lines 13a through 13d) related to rental activities. On the dotted line to the left of the entry space for line 13e, identify the type of credit. If there is more than one type of credit, attach a statement to Form 1120-S that identifies the type and amount for each credit. These credits may include any type of credit listed in the instructions for line 13g.
Schedule K-1. Report in box 13 of Schedule K-1 each shareholder’s pro rata share of other rental credits using code G . If you are reporting each shareholder’s pro rata share of only one type of rental credit under code G, enter the code with an asterisk (G*) and the dollar amount in the entry space in box 13 and attach a statement that shows “Box 13, code G” and the type of credit. If you are reporting multiple types of rental credit under code G, enter the code with an asterisk (G*) and enter “STMT” in the entry space in box 13 and attach a statement that shows “Box 13, code G” and the dollar amount of each type of credit. If the corporation has credits from more than one rental activity, identify on the attached statement the amount of each type of credit for each separate activity. See Passive Activity Reporting Requirements , earlier.
Line 13f. Biofuel Producer Credit
Enter on line 13f any biofuel producer credit attributable to trade or business activities. If the credit is attributable to rental activities, enter the amount on line 13d or 13e.
Figure this credit on Form 6478, if applicable. Attach it to Form 1120-S. Include any amount shown on Form 6478, line 2, in the corporation’s income on Form 1120-S, line 5.
See section 40(f) for an election the corporation can make to have the credit not apply.
Schedule K-1. Report in box 13 of Schedule K-1 each shareholder’s pro rata share of the biofuel producer credit reported on line 13f using code I . If the corporation has credits from more than one activity, identify on an attachment to Schedule K-1 the amount for each separate activity. See Passive Activity Reporting Requirements, earlier.
Line 13g. Other Credits
Enter on line 13g any other credit, except credits or expenditures shown or listed for lines 13a through 13f or the credit for federal tax paid on fuels (which is reported on line 24c of page 1). On the line to the left of the entry space for line 13g, identify the type of credit. If there is more than one type of credit, attach a statement to Form 1120-S that separately identifies each type and amount of credit for the following categories. The codes needed for box 13 of Schedule K-1 are provided in the heading of each category.
Zero-emission nuclear power production credit (code A). Complete Form 7213, Nuclear Power Production Credit, Part II, to figure the credit. Attach it to Form 1120-S.
Credit for production from advanced nuclear power facili- ties (code B). Complete Form 7213, Part I, to figure the credit. Attach it to Form 1120-S.
Instructions for Form 1120-S (2025) 35
Undistributed capital gains credit (code H). This credit represents taxes paid on undistributed capital gains by a RIC or REIT. As a shareholder of a RIC or REIT, the corporation will receive notice of the amount of tax paid on undistributed capital gains on Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains.
Work opportunity credit (code J). Complete Form 5884 to figure the credit. Attach it to Form 1120-S.
Disabled access credit (code K). Complete Form 8826 to figure the credit. Attach it to Form 1120-S.
Empowerment zone employment credit (code L). Complete Form 8844 to figure the credit. Attach it to Form 1120-S.
Credit for increasing research activities (code M). Complete Form 6765 to figure the credit. Attach it to Form 1120-S. For more information, see the Instructions for Form 6765.
Tip: The corporation should provide the information necessary for the shareholder to determine whether the corporation is an eligible small business under section 38(c)(5)(A). If the shareholder and the corporation meet the requirements of section 38(c)(5)(A), the research credit may be treated as a specified credit.
Credit for employer social security and Medicare taxes paid on certain employee tips (code N). Complete Form 8846 to figure the credit. Attach it to Form 1120-S.
Backup withholding (code O). This credit is for backup withholding on dividends, interest, and other types of income of the corporation.
Unused investment credit from the qualifying advanced coal project credit or qualifying gasification project credit allocated from cooperatives (code P). See the Instructions for Form 3468.
Unused investment credit from the qualifying advanced en- ergy project credit allocated from cooperatives (code Q). See the Instructions for Form 3468.
Unused investment credit from the advanced manufactur- ing investment credit allocated from cooperatives (code R). See the Instructions for Form 3468.
Unused investment credit from clean electricity credit allo- cated from cooperatives (code S). See the Instructions for Form 3468.
Unused investment credit from the energy credit allocated from cooperatives (code T). See the Instructions for Form 3468.
Unused investment credit from the rehabilitation credit al- located from cooperatives (code U). See the Instructions for Form 3468.
Advanced manufacturing production credit (code V). Complete Form 7207, Advanced Manufacturing Production Credit, to figure the credit. Attach it to Form 1120-S.
Clean electricity production credit (code W). See the Instructions for Form 7211.
Clean fuel production credit (code X). See the Instructions for Form 7218.
Clean hydrogen production credit (code Y). Complete Form 7210, Clean Hydrogen Production Credit, to figure the credit. Attach it to Form 1120-S.
Orphan drug credit (code Z). Complete Form 8820, Orphan Drug Credit, to figure the credit. Attach it to Form 1120-S.
Enhanced oil recovery credit (code AA). Complete Form 8830, Enhanced Oil Recovery Credit, to figure the credit. Attach it to Form 1120-S.
Renewable electricity production credit (code AB). Complete Form 8835, Renewable Electricity Production Credit, if applicable. Attach a statement to Form 1120-S and Schedule K-1 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.
Biodiesel, renewable diesel, or sustainable aviation fuels credit (code AC). Complete Form 8864, Biodiesel, Renewable Diesel, or Sustainable Aviation Fuels Credit. Include any amount from Form 8864, line 10, in the corporation’s income on Form 1120-S, line 5. If this credit includes the small agri-biodiesel producer credit, identify on a statement attached to Schedule K-1 (a) the small agri-biodiesel producer credit included in the total credit allocated to the shareholder, (b) the number of gallons for which the corporation claimed the small agri-biodiesel producer credit, and (c) the corporation’s productive capacity for agri-biodiesel. Also report separately on an attached statement the amount of any sustainable aviation fuel credit.
New markets credit (code AD). Complete Form 8874, New Markets Credit.
Credits for small employer pension plan startup costs and contributions (code AE). Complete Form 8881, Credits for Small Employer Pension Plan Startup Costs, Contributions, Auto-Enrollment, and Military Spouse Participation, Part I.
Credit for small employer auto-enrollment (code AF). Complete Form 8881, Part II.
Credit for military spouse participation (code AG). Complete Form 8881, Part III.
Credit for employer-provided childcare facilities and serv- ices (code AH). Complete Form 8882, Credit for Employer-Provided Childcare Facilities and Services.
Low sulfur diesel fuel production credit (code AI). Complete Form 8896, Low Sulfur Diesel Fuel Production Credit.
Qualified railroad track maintenance credit (code AJ). Complete Form 8900, Qualified Railroad Track Maintenance Credit.
Credit for oil and gas production from marginal wells (code AK). Complete Form 8904, Credit for Oil and Gas Production From Marginal Wells, if applicable.
Distilled spirits credit (code AL). Complete Form 8906, Distilled Spirits Credit.
Energy efficient home credit (code AM). Complete Form 8908, Energy Efficient Home Credit.
Code AN. Reserved for future use.
Alternative fuel vehicle refueling property credit (code AO). Complete Form 8911, Alternative Fuel Vehicle Refueling Property Credit.
Clean renewable energy bond credit (code AP). The amount of this credit (excluding any credits from partnerships, estates, and trusts) is reported as interest income on Schedule K, line 4. In addition, the amount of this credit is reported on Schedule K, line 16d. See the Instructions for Form 8912.
New clean renewable energy bond credit (code AQ). The amount of this credit (excluding any credits from partnerships, estates, and trusts) is reported as interest income on Schedule K, line 4. In addition, the amount of this credit is
36 Instructions for Form 1120-S (2025)
reported as a property distribution on Schedule K, line 16d. See the Instructions for Form 8912.
Qualified energy conservation bond credit (code AR). The amount of this credit (excluding any credits from partnerships, estates, and trusts) is reported as interest income on Schedule K, line 4. In addition, the amount of this credit is reported as a property distribution on Schedule K, line 16d. See the Instructions for Form 8912.
Qualified zone academy bond credit (code AS). The amount of this credit (excluding any credits from partnerships, estates, and trusts) is reported as interest income on Schedule K, line 4. In addition, the amount of this credit is reported on Schedule K, line 16d. See the Instructions for Form 8912.
Qualified school construction bond credit (code AT). The amount of this credit (excluding any credits from partnerships, estates, and trusts) is reported as interest income on Schedule K, line 4. In addition, the amount of this credit is reported as a property distribution on Schedule K, line 16d. See the Instructions for Form 8912.
Build America bond credit (code AU). The amount of this credit (excluding any credits from partnerships, estates, and trusts) is reported as interest income on Schedule K, line 4. In addition, the amount of this credit is reported as a property distribution on Schedule K, line 16d. See the Instructions for Form 8912.
Credit for employer differential wage payments (code AV). Complete Form 8932, Credit for Employer Differential Wage Payments.
Carbon oxide sequestration credit (code AW). Complete Form 8933, Carbon Oxide Sequestration Credit, to figure the credit. Attach it to Form 1120-S.
Carbon oxide sequestration credit recapture (code AX). Complete Form 8933 to figure the credit recapture. Attach it to Form 1120-S. Report the carbon oxide sequestration credit recapture amount from Form 8933, Part III, line 10.
New clean vehicle credit (code AY). Complete Form 8936, Clean Vehicle Credits, Part II.
Qualified commercial clean vehicle credit (code AZ). Complete Form 8936, Part V.
Credit for small employer health insurance premiums (code BA). Complete Form 8941, Credit for Small Employer Health Insurance Premiums.
Employer credit for paid family and medical leave (code BB). Complete Form 8994, Employer Credit for Paid Family and Medical Leave.
Eligible credits from transferor(s) under section 6418 (code BC). Enter the total amount of eligible credits received from transferor(s) included in your Form 3800, Part III, line 6, column (g). Also, enter the total of the shareholder’s pro rata share of all eligible credits received from transferor(s) that were received from another pass-through entity. See required statement below.
Caution: Partnership and S corporation pass-through entities that transferred eligible credits from an unrelated person for cash under section 6418 must use Form 3800, Part III and Part V (if applicable), to report such credits. See the Instructions for Form 3800 for reporting and other requirements. Schedule K-1. Enter the shareholder’s pro rata share of all eligible credits transferred from one or more unrelated transferors pursuant to a transfer election under section 6418. This amount must include the shareholder’s pro rata share of all eligible credits from transferors that were received from another pass-through entity. Enter the code BC and an asterisk () (BC)
in the left column and enter “STMT” in the entry space to the right. Attach a statement that contains the following information for each purchased credit. Attach a statement that contains the following information.
The shareholder’s pro rata share of the eligible credits received from transferor(s) reported on the applicable line, column (f) of your Part III or Part V (if applicable) of Form 3800.
The name of the credit form in column (a) of the applicable line of Part III or Part V (if applicable).
Source information for each eligible credit shown in Part III or Part V (if applicable), including:
The IRS-issued registration number for transfers in column (b) of Part III and Part V, and
The pass-through or transferor’s EIN in column (c) of Part III or column (c)(1) or (c)(2) of Part V.
- If a shareholder’s pro rata share includes an allocation of eligible credits purchased by a lower-tier pass-through entity and reported on Schedule K-1, you must provide the EIN of such transferee shareholder or S corporation and the source information that was provided to you by such entity.
See the Instructions for Form 3800 for additional details.
Codes BD through BG. Reserved for future use.
Other credits (code ZZ). Include any other type of credits not listed on lines 13a through 13f or reported using codes A, B, H, or J through BC.
Section 6418 transfers of credits under section 48, 48C, or 48E. If the S corporation has made an election under section 6418 to transfer a portion of a general business credit determined under section 48, 48C, or 48E to an unrelated transferee taxpayer, use code ZZ to report to the shareholders their shares of the retained section 48, 48C, or 48E credit not transferred by the S corporation. Do NOT use line 17d, code D, to report the basis information for the shareholder’s share of the retained credit.
Schedule K-1. Enter in box 13 of Schedule K-1 each shareholder’s pro rata share of the credits listed above. See additional Schedule K-1 reporting information provided in the instructions above. Enter the applicable code, A, B, H, or J through BC, in the column to the left of the dollar amount entry space.
If you are reporting each shareholder’s pro rata share of only one type of credit under code ZZ, enter the code with an asterisk (ZZ*) and the dollar amount in the entry space in box 13 and attach a statement that shows “Box 13, code ZZ” and the type of credit. If you are reporting multiple types of credit under code ZZ, enter the code with an asterisk (ZZ*) and enter “STMT” in the entry space in box 13 and attach a statement that shows “Box 13, code ZZ” and the dollar amount of each type of credit. If the corporation has credits from more than one activity, identify on an attachment to Schedule K-1 the amount of each type of credit for each separate activity. See Passive Activity Reporting Requirements , earlier.
International Check the box on line 14a if you are reporting items of international tax relevance. See the Instructions for Schedule K-2 (Form 1120-S) to determine if you need to attach Schedules K-2 and K-3. If you satisfy the domestic filing exception to filing Schedule K-3, you must provide notification to the shareholder either through an attachment to the Schedule K-1 or a separate statement prior to filing the Form 1120-S.
Check the box on line 14b if you satisfy an exception to filing Schedule K-2 (Form 1120-S). Attach a statement to explain your qualification for the exception.
Instructions for Form 1120-S (2025) 37
Alternative Minimum Tax (AMT) Items Lines 15a through 15f must be completed for all shareholders.
Enter items of income and deductions that are adjustments or tax preference items for the AMT. For more information, see Form 6251, Alternative Minimum Tax—Individuals, or Schedule I (Form 1041), Alternative Minimum Tax—Estates and Trusts.
Don’t include as a tax preference item any qualified expenditures to which an election under section 59(e) may apply. Instead, report these expenditures on line 12d. Because these expenditures are subject to an election by each shareholder, the corporation can’t figure the amount of any tax preference related to them. Instead, the corporation must pass through to each shareholder in box 12, code J, of Schedule K-1, the information needed to figure the deduction.
Schedule K-1. Report each shareholder’s pro rata share of amounts reported on lines 15a through 15f in box 15 of Schedule K-1 using codes A through F, respectively.
If the corporation is reporting items of income or deduction for oil, gas, and geothermal properties, you may be required to identify these items on a statement attached to Schedule K-1 (see the instructions for lines 15d and 15e). Also see the requirement for an attached statement in the instructions for line 15f.
Line 15a. Post-1986 Depreciation Adjustment
Figure the adjustment for line 15a based only on tangible property placed in service after 1986 (and tangible property placed in service after July 31, 1986, and before 1987, for which the corporation elected to use the Modified Accelerated Cost Recovery System (MACRS)). Don’t make an adjustment for motion picture films, videotapes, sound recordings, certain public utility property (see section 168(f)(2)), property depreciated under the unit-of-production method (or any other method not expressed in a term of years), qualified Indian reservation property, property eligible for a special depreciation allowance, qualified revitalization expenditures, or the section 179 expense deduction.
For property placed in service before 1999, refigure depreciation for the AMT as follows (using the same convention used for the regular tax).
For section 1250 property (generally, residential rental and nonresidential real property), use the straight line method over 40 years.
For tangible property (other than section 1250 property) depreciated using the straight line method for the regular tax, use the straight line method over the property’s class life. Use 12 years if the property has no class life.
For any other tangible property, use the 150% declining balance method, switching to the straight line method the first tax year it gives a larger deduction, over the property’s AMT class life. Use 12 years if the property has no class life.
Tip: See Pub. 946 for a table of class lives.
For property placed in service after 1998, refigure depreciation for the AMT only for property depreciated for the regular tax using the 200% declining balance method. For the AMT, use the 150% declining balance method, switching to the straight line method the first tax year it gives a larger deduction, and the same convention and recovery period used for the regular tax.
Figure the adjustment by subtracting the AMT deduction for depreciation from the regular tax deduction and enter the result on line 15a. If the AMT deduction is more than the regular tax deduction, enter the difference as a negative amount.
Depreciation capitalized to inventory must also be refigured using the AMT rules. Include on this line the current year adjustment to income, if any, resulting from the difference.
Line 15b. Adjusted Gain or Loss
If the corporation disposed of any tangible property placed in service after 1986 (or after July 31, 1986, if an election was made to use the General Depreciation System), or if it disposed of a certified pollution control facility placed in service after 1986, refigure the gain or loss from the disposition using the adjusted basis for the AMT. The property’s adjusted basis for the AMT is its cost or other basis minus all depreciation or amortization deductions allowed or allowable for the AMT during the current tax year and previous tax years. Enter on this line the difference between the regular tax gain (loss) and the AMT gain (loss). If the AMT gain is less than the regular tax gain, or the AMT loss is more than the regular tax loss, or there is an AMT loss and a regular tax gain, enter the difference as a negative amount.
If any part of the adjustment is allocable to net short-term capital gain (loss), net long-term capital gain (loss), or net section 1231 gain (loss), attach a statement that identifies the amount of the adjustment allocable to each type of gain or loss.
For a net long-term capital gain (loss), also identify the amount of the adjustment that is collectibles (28%) gain (loss).
For a net section 1231 gain (loss), also identify the amount of adjustment that is unrecaptured section 1250 gain.
Line 15c. Depletion (Other Than Oil and Gas)
Don’t include any depletion on oil and gas wells. The shareholders must figure their oil and gas depletion deductions and preference items separately under section 613A.
Refigure the depletion deduction under section 611 for mines, wells (other than oil and gas wells), and other natural deposits for the AMT. Percentage depletion is limited to 50% of the taxable income from the property as figured under section 613(a), using only income and deductions for the AMT. Also, the deduction is limited to the property’s adjusted basis at the end of the year as figured for the AMT. Figure this limit separately for each property. When refiguring the property’s adjusted basis, take into account any AMT adjustments made this year or in previous years that affect basis (other than the current year’s depletion).
Enter the difference between the regular tax and AMT deduction. If the AMT deduction is greater, enter the difference as a negative amount.
Oil, Gas, and Geothermal Properties—Gross Income and Deductions
Generally, the amounts to be entered on lines 15d and 15e are only the income and deductions for oil, gas, and geothermal properties that are used to figure the corporation’s ordinary business income (loss) on Form 1120-S, page 1, line 22.
If there are any items of income or deductions for oil, gas, and geothermal properties included in the amounts that are required to be passed through separately to the shareholders on Schedule K-1 (items not reported in box 1 of Schedule K-1), give each shareholder a statement that shows, for the box in which the income or deduction is included, the amount of income or deductions included in the total amount for that box. Don’t include any of these direct pass-through amounts on line 15d or
38 Instructions for Form 1120-S (2025)
15e. The shareholder is told in the Shareholder’s Instructions for Schedule K-1 (Form 1120-S) to adjust the amounts in box 15, code D or E, for any other income or deductions from oil, gas, or geothermal properties included in boxes 2 through 12, 16, or 17 of Schedule K-1 in order to determine the total income and deductions from oil, gas, and geothermal properties for the corporation.
Figure the amounts for lines 15d and 15e separately for oil and gas properties that aren’t geothermal deposits and for all properties that are geothermal deposits.
Give each shareholder a statement that shows the separate amounts included in the computation of the amounts on Schedule K, lines 15d and 15e.
Line 15d. Oil, Gas, and Geothermal Properties—Gross Income
Enter the total amount of gross income (within the meaning of section 613(a)) from all oil, gas, and geothermal properties received or accrued during the tax year and included on Form 1120-S, page 1.
Line 15e. Oil, Gas, and Geothermal Properties—Deductions
Enter any deductions allowed for the AMT that are allocable to oil, gas, and geothermal properties.
Line 15f. Other AMT Items
Attach a statement to Form 1120-S and Schedule K-1 that shows other items not shown on lines 15a through 15e that are adjustments or tax preference items or that the shareholder needs to complete Form 6251 or Schedule I (Form 1041). See these forms and their instructions to determine the amount to enter.
Other AMT items include the following.
Accelerated depreciation of real property under pre-1987 rules.
Accelerated depreciation of leased personal property under pre-1987 rules.
Long-term contracts entered into after February 28, 1986. Except for certain home construction contracts, the taxable income from these contracts must be figured using the percentage of completion method of accounting for the AMT.
Losses from tax shelter farm activities. No loss from any tax shelter farm activity is allowed for the AMT.
Any amount from Form 6478 reported as other income on Form 1120-S, line 5.
Any amount from Form 8864 reported as other income on Form 1120-S, line 5.
Schedule K-1. If you are reporting each shareholder’s pro rata share of only one type of AMT item under code F, enter the code with an asterisk (F*) and the dollar amount in the entry space in box 15 and attach a statement that shows the type of AMT item. If you are reporting multiple types of AMT items under code F, enter the code with an asterisk (F*) and enter “STMT” in the entry space in box 15 and attach a statement that shows the dollar amount of each type of AMT item.
Items Affecting Shareholder Basis
Line 16a. Tax-Exempt Interest Income
Enter on line 16a tax-exempt interest income, including any exempt-interest dividends received from a mutual fund or other regulated investment company. Individual shareholders must report this information on Form 1040 or 1040-SR, line 2a. Generally, under section 1367(a)(1)(A), the basis of the shareholder’s stock is increased by the amount shown on this line.
Line 16b. Other Tax-Exempt Income
Enter on line 16b all income of the corporation exempt from tax other than tax-exempt interest (for example, life insurance proceeds, but see section 101(j) for limits and reporting requirements). Generally, under section 1367(a)(1)(A), the basis of the shareholder’s stock is increased by the amount shown on this line.
Tax-exempt income from transfer election. Enter the total consideration received by the transferor S corporation as a result of a transfer election under section 6418. If the S corporation is allocated tax-exempt income from a pass-through entity (or lower-tier pass-through entity) making a transfer election to transfer its credits, include those amounts in code B as well.
Schedule K-1. This amount includes the shareholder’s pro rata share of tax-exempt income allocated by the transferor S corporation related to proceeds received by the S corporation as a result of the S corporation making a transfer election to transfer its credits under section 6418. This amount also includes the shareholder’s pro rata share of allocations made to the transferor S corporation from a pass-through entity for which the S corporation was a partner related to the pass-through entity (or lower-tier pass-through entity) making a transfer election to transfer its credits.
Tax-exempt income from EPE. Enter the amount from Form 1120-S, page 1, line 24d. This is the total amount of credits determined by the S corporation for which an EPE is being made.
Schedule K-1. The S corporation has claimed an amount on Form 1120-S, page 1, line 24d, which is treated as tax-exempt income for purposes of S corporation allocations. The amount listed on line 16 as code B includes the shareholder’s pro rata share of tax-exempt income as a result of the S corporation making an EPE under section 6417. This amount also includes the shareholder’s pro rata share of allocations to the S corporation from a pass-through entity (or lower-tier pass-through entity) that made an EPE.
Line 16c. Nondeductible Expenses
Enter on line 16c nondeductible expenses paid or incurred by the corporation.
Payments made by transferee S corporations to eligible taxpayers for the purchase of eligible credits as a result of a transfer election under section 6418 are treated as nondeductible expenses and are reported on this line 16c.
Don’t include separately stated deductions shown elsewhere on Schedules K and K-1, capital expenditures, or items for which the deduction is deferred to a later tax year.
Generally, under section 1367(a)(2)(D), the basis of the shareholder’s stock is decreased by the amount shown on this line.
Instructions for Form 1120-S (2025) 39
Line 16d. Distributions
Enter the total distributions (including cash) made to each shareholder other than dividends reported on Schedule K, line 17c. Include the shareholder’s pro rata share of any amounts included in interest income with respect to new clean renewable energy, qualified energy conservation, qualified zone academy (for bonds issued after October 3, 2008), qualified school construction, or build America bonds. Distributions of appreciated property are valued at FMV. If property other than cash was distributed, attach a statement to provide the following information.
The date the property was acquired.
The date the property was distributed.
The property’s FMV on the date of distribution.
The corporation’s basis in the property. See Distributions, later, for the ordering rules.
Line 16e. Repayment of Loans From Shareholders
Enter any repayments made to shareholders during the current tax year.
Line 16f. Foreign Taxes Paid or Accrued
Enter in U.S. dollars the total creditable foreign taxes (described in section 901 or section 903) that were paid or accrued according to the corporation’s method of accounting for such taxes. Translate these amounts into U.S. dollars by using the applicable exchange rate. See Pub. 514, Foreign Tax Credit for Individuals.
Schedule K-1. Report each shareholder’s pro rata share of amounts reported on lines 16a, 16b, 16c, and 16f (concerning items affecting shareholder basis) in box 16 of Schedule K-1 using codes A, B, C, and F, respectively. Report property distributions (line 16d) and repayment of loans from shareholders (line 16e) on the Schedule K-1 of the shareholder(s) that received the distributions or repayments (using codes D and E ).
Other Information
Lines 17a and 17b. Investment Income and Expenses
Enter on line 17a the investment income included on Schedule K, lines 4, 5a, 6, and 10. Don’t include other portfolio gains or losses on this line.
Enter on line 17b the investment expense included on Schedule K, line 12e.
Investment income includes gross income from property held for investment, the excess of net gain attributable to the disposition of property held for investment over net capital gain from the disposition of property held for investment, any net capital gain from the disposition of property held for investment that each shareholder elects to include in investment income under section 163(d)(4)(B)(iii), and any qualified dividend income that the shareholder elects to include in investment income. Generally, investment income and investment expenses don’t include any income or expenses from a passive activity. See Regulations section 1.469-2(f)(10) for exceptions.
Property subject to a net lease isn’t treated as investment property because it is subject to the passive loss rules. Don’t reduce investment income by losses from passive activities.
Investment expenses are deductible expenses (other than interest) directly connected with the production of investment income. See the Instructions for Form 4952 for more information.
Schedule K-1. Report each shareholder’s pro rata share of amounts reported on lines 17a and 17b (investment income and expenses) in box 17 of Schedule K-1 using codes A and B, respectively.
If there are other items of investment income or expense included in the amounts that are required to be passed through separately to the shareholders on Schedule K-1, such as net short-term capital gain or loss, net long-term capital gain or loss, and other portfolio gains or losses, give each shareholder a statement identifying these amounts.
Line 17c. Dividend Distributions Paid From Accumulated Earnings and Profits (Schedule K Only)
Enter total dividends paid to shareholders from accumulated earnings and profits. Report these dividends to shareholders on Form 1099-DIV. Don’t report them on Schedule K-1.
Line 17d. Other Items and Amounts
Report the following information on a statement attached to Form 1120-S. On Schedule K-1, enter the appropriate code in box 17 for each information item followed by an asterisk in the left-hand column of the entry space (for example, C*). In the right-hand column, enter “STMT.” The codes are provided for each information category.
Qualified rehabilitation expenditures (other than rental real estate) (code C). Enter total qualified rehabilitation expenditures from activities other than rental real estate activities. See the Instructions for Form 3468 for details on qualified rehabilitation expenditures.
Tip: Report qualified rehabilitation expenditures related to rental real estate activities on line 13c.
Schedule K-1. Report each shareholder’s pro rata share of qualified rehabilitation expenditures related to activities other than rental real estate activities in box 17 of Schedule K-1 using code C. Attach a statement to Schedule K-1 that provides the information and the shareholder’s pro rata share of the basis and expenditure amounts the shareholder will need to figure the amounts to report on Form 3468, Part VII. See the Instructions for Form 3468 for details. If the corporation has expenditures from more than one activity, identify on a statement attached to Schedule K-1 the information and amounts for each separate activity. See Passive Activity Reporting Requirements , earlier.
Basis of energy property (code D). In box 17 of Schedule K-1, enter code D followed by an asterisk and enter “STMT” in the entry space for the dollar amount. Attach a statement to Schedule K-1 that provides the shareholder’s pro rata share of the basis and capacity amounts the shareholder will need to figure the amounts to report on Form 3468, Part VI, lines 1a, 3a, 3e, 5a, 5f, 5o, 7a, 7j, 9a, 9b, 11d, 11h, 13a, 15a, 17a, 17e, 19a, 21a, 23a, 23e, 25a, 25d, 25g, 25j, and 28a. See the Instructions for Form 3468 for details.
Caution: If a portion of a section 48, 48C, or 48E credit has been transferred under section 6418, do NOT use code D to report the basis information for the shareholder’s share of the retained credit. See Other credits (code ZZ) under line 13g, earlier.
Recapture of low-income housing credit (codes E and F). If recapture of part or all of the low-income housing credit is required because (a) the prior year qualified basis of a building
40 Instructions for Form 1120-S (2025)
decreased, or (b) the corporation disposed of a building or part of its interest in a building, see Form 8611, Recapture of Low-Income Housing Credit. Complete Form 8611, lines 1 through 7, to figure the amount of the credit to recapture.
Use code E on Schedule K-1 to report recapture of the low-income housing credit from a section 42(j)(5) partnership. Use code F to report recapture of any other low-income housing credit. See the instructions for lines 13a and 13b, earlier, for more information.
Tip: If a shareholder’s ownership interest in a building decreased because of a transaction at the shareholder level, the corporation must provide the necessary information to the shareholder to enable the shareholder to figure the recapture.
Caution: The disposal of a building or an interest therein will generate a credit recapture unless it is reasonably expected that the building will continue to be operated as a qualified low-income building for the remainder of the building’s compliance period.
See Form 8586, Form 8611, and section 42 for more information.
Recapture of investment credit (code G). Complete and attach Form 4255 if, before the end of the recapture period, investment credit property is disposed of or no longer qualifies for the credit or if credit recapture is otherwise required. See the Instructions for Form 4255 for details about when credit recapture is required. State the type of property in Part II, Section A; and complete Section B, lines 2, 3, and 4; and Section D, lines 10 and 11, whether or not any shareholder is subject to recapture of the credit.
Attach to each Schedule K-1 a separate statement providing the information the corporation is required to show on Form 4255, but list only the shareholder’s pro rata share of the basis of the property subject to recapture. Also indicate the lines of Form 4255 on which the shareholders should report these amounts. The corporation itself is liable for investment credit recapture in certain cases. See Form 4255 , earlier, for details.
Recapture of other credits (code H). On an attached statement to Schedule K-1, provide any information shareholders will need to report recapture of credits (other than recapture of the low-income housing credit and investment credit reported on Schedule K-1 using codes E, F, and G). The following are examples of credits subject to recapture and reported using code H.
(iii)) and it depreciated certain property placed in service after September 13, 1995, under the income forecast method, it must attach to Form 1120-S the information specified in the instructions for Form 8866, line 2, for the 3rd and 10th tax years beginning after the tax year the property was placed in service. It must also report the line 2 amounts to its shareholders. See the Instructions for Form 8866 for more details.
Dispositions of property with section 179 deductions (code K). This represents gain or loss on the sale, exchange, or other disposition of property for which a section 179 deduction has been passed through to shareholders. The corporation must provide all the following information with respect to such dispositions (see the instructions for Form 1120-S, line 4, earlier).
The shareholder’s pro rata share of the original basis and depreciation allowed or allowable (not including the section 179 deduction).
Description of the property.
Date the property was acquired and placed in service.
Date of the sale or other disposition of the property.
The shareholder’s pro rata share of the gross sales price or amount realized.
The shareholder’s pro rata share of the cost or other basis plus expense of sale (reduced as explained in the instructions for Form 4797, line 21).
The shareholder’s pro rata share of the depreciation allowed or allowable, determined as described in the instructions for Form 4797, line 22, but excluding the section 179 deduction.
The shareholder’s pro rata share of the section 179 deduction (if any) passed through for the property and the corporation’s tax year(s) in which the amount was passed through.
If the disposition is due to a casualty or theft a statement indicating so, and any additional information needed by the shareholder.
For an installment sale, any information the shareholder needs to complete Form 6252. The corporation must also separately report the shareholder’s pro rata share of all payments received for the property in future tax years. (Installment payments received for installment sales made in prior tax years should be reported in the same manner used in prior tax years.) See the Instructions for Form 6252 for details.
Recapture of section 179 deduction (code L). This amount represents recapture of the section 179 deduction if business use of the property dropped to 50% or less before the end of the recapture period. If the business use of any property for which a section 179 deduction was passed through to shareholders dropped to 50% or less (for a reason other than disposition), the corporation must provide all the following information.
The new clean vehicle credit. See section 30D(f)(5) for details.
The new markets credit. See Form 8874 and Form 8874-B, Notice of Recapture Event for New Markets Credit, for details.
The shareholder’s pro rata share of the section 179 deduction (if any) passed through for the property and the corporation’s tax year(s) in which the amount was passed through.
The credit for employer-provided childcare facilities and services. See section 45F(d) for details.
The alternative motor vehicle credit. See section 30B(h)(8) for details.
The alternative fuel vehicle refueling property credit. See section 30C(e)(5) for details.
Look-back interest—Completed long-term contracts (code I). If the corporation is closely held (defined in section 460(b)(4) (C)(iii)) and it entered into any long-term contracts after February 28, 1986, that are accounted for under either the percentage of completion-capitalized cost method or the percentage of completion method, it must attach a statement to Form 1120-S showing the information required in items (a) and (b) of the instructions for Form 8697, Part II, lines 1 and 3. It must also report the amounts for Part II, lines 1 and 3, to its shareholders. See the Instructions for Form 8697 for more information.
Look-back interest—Income forecast method (code J). If the corporation is closely held (defined in section 460(b)(4)(C)
See Regulations section 1.179-1(e) for details.
Section 453(l)(3) information (code M). Supply any information needed by a shareholder to figure the interest due under section 453(l)(3). If the corporation elected to report the dispositions of certain timeshares and residential lots on the installment method, each shareholder’s tax liability must be increased by the shareholder’s pro rata share of the interest on tax attributable to the installment payments received during the tax year.
Section 453A(c) information (code N). Supply any information shareholders need to figure the interest charge under section 453A(c). See Pub. 537, Installment Sales. This information must include the following from each Form 6252 where the shareholder’s pro rata share of the selling price, including mortgages and other debts, is greater than $150,000.
- Description of property.
Instructions for Form 1120-S (2025) 41
Date acquired.
Date property sold.
Selling price, including mortgages and other debts (not including interest, whether stated or unstated).
Gain reported on the installment sale basis (or attributable to a private annuity) that is attributable to the disposition of property held in a trade or business.
Mortgages, debts, and other liabilities the buyer assumed or took the property subject to.
Gross profit.
Contract price.
Gross profit percentage.
Current year payments and deemed payments received during the year, not including interest whether stated or unstated.
Origination year payments and deemed payments received during the year, not including interest whether stated or unstated.
Gain or loss from the disposition of a partnership interest but only if such partnership was engaged, directly or indirectly, in one or more trades or businesses, and at least one of those trades or businesses wasn’t trading in financial instruments or commodities.
The shareholder’s pro rata share of interest income or interest expense that is attributable to a loan between the corporation and the shareholder (self-charged interest).
Payments received in prior years, not including interest whether stated or unstated.
Installment sale income.
Character of the income—capital or ordinary. See section 453A(c) for information on how to compute the interest charge on the deferred tax liability. The section 453A interest charge is reported on the other tax line of the shareholder’s tax return. See Interest on Deferred Tax in Pub. 537 for additional details on how to compute the section 453A(c) interest.
Section 1260(b) information (code O). Supply any information needed by a shareholder to figure the interest due under section 1260(b). If the corporation had gain from certain constructive ownership transactions, each shareholder’s tax liability must be increased by the shareholder’s pro rata share of interest due on any deferral of gain recognition. See section 1260(b) for details, including how to figure the interest.
Interest allocable to production expenditures (code P). Supply any information needed by a shareholder to properly capitalize interest as required by section 263A(f). See Section 263A uniform capitalization rules, earlier, for more information.
CCF nonqualified withdrawals (code Q). Report nonqualified withdrawals by the corporation from a capital construction fund. Attach a statement to the shareholder’s Schedule K-1 providing details of the withdrawal. See Pub. 595.
Depletion information—Oil and gas (code R). Report gross income and other information relating to oil and gas well properties to shareholders to allow them to figure the depletion deduction for oil and gas well properties. Allocate to each shareholder a proportionate share of the adjusted basis of each corporate oil or gas well property. See section 613A(c)(11) for details.
The corporation can’t deduct depletion on oil and gas wells. Each shareholder must determine the allowable amount to report on the shareholder’s return.
Codes S and T. Reserved for future use.
Net investment income (code U). Use code U to report any information that may be relevant for shareholders to figure their net investment income tax when the information isn’t otherwise identifiable elsewhere on Schedule K-1 or Schedule K-3. Attach a statement that shows a description and dollar amount of each relevant item.
If the corporation received a Form 1065, Schedule K-1, the detail and amounts reported to the corporation using box 20, code Y.
If the corporation received a Form 1041, Schedule K-1, the amount of the adjustment reported.
In addition, Regulations section 1.1411-10 provides special rules with respect to stock of CFCs and passive foreign investment companies (PFICs) owned by the corporation. If the corporation owns, directly or indirectly, stock of a CFC or PFIC, then additional reporting may be required under code U.
CFCs and QEFs. In the case of stock of CFCs and QEFs owned directly or indirectly by the corporation, the corporation must provide the name and EIN (if one has been issued) for each CFC and QEF the stock of which is owned by the corporation for which an election under Regulations section 1.1411-10(g) is not in effect and with respect to which the corporation isn’t engaged in a trade or business described in section 1411(c)(2). For each of these entities, the corporation must provide the following information on an entity-by-entity basis (to the extent such information isn’t otherwise identifiable on Schedule K-3).
Section 951(a) inclusions.
Section 951A inclusions to the extent allocated to the CFC under section 951A(f)(2) if the corporation has elected entity treatment under Notice 2020-60, 2020-39 I.R.B. 604.
Section 1293(a)(1)(A) inclusions.
Section 1293(a)(1)(B) inclusions.
Section 959(d) distributions subject to section 1411.
Section 1293(c) distributions subject to section 1411.
Amount of gain or loss derived with respect to dispositions of the stock of CFCs and QEFs that is taken into account for section 1411 purposes.
Amounts that are derived with respect to the disposition of the stock of CFCs and QEFs and included in income as a dividend under section 1248 for section 1411 purposes.
In the case of stock of CFCs and QEFs directly or indirectly owned by the corporation for which an election under Regulations section 1.1411-10(g) is in effect, the corporation must provide the following information (to the extent such information isn’t otherwise identifiable on Schedule K-3), on either an aggregate basis or an entity-by-entity basis.
Section 951(a) inclusions.
Section 951A inclusions to the extent allocated to the CFC under section 951A(f)(2) if the corporation has elected entity treatment under Notice 2020-60.
Examples of items reported using code U may include the following.
Net rental real estate income reported on Form 1120-S, Schedule K, line 2, and other net rental income reported on Form 1120-S, Schedule K, line 3c, derived from a section 212 for-profit activity (and not from a section 162 trade or business).
Gains and losses from dispositions of assets attributable to a section 212 for-profit activity (and not from a section 162 trade or business).
Section 1293(a)(1)(A) inclusions.
Section 1293(a)(1)(B) inclusions. In the case of stock of CFCs and QEFs directly or indirectly owned by the corporation with respect to which the corporation is engaged in a trade or business described in section 1411(c) (2), the corporation must provide the following information (to the extent such information isn’t otherwise identifiable on Schedule K-3), on either an aggregate or an entity-by-entity basis, or may aggregate this information with other income derived by the corporation that is net investment income under section 1411(c)(1)(A)(ii).
Section 951(a) inclusions.
42 Instructions for Form 1120-S (2025)
Section 951A inclusions to the extent allocated to the CFC under section 951A(f)(2) if the corporation has elected entity treatment under Notice 2020-60.
Section 1293(a)(1)(A) inclusions.
Section 1293(a)(1)(B) inclusions. Section 1296 mark-to-market PFICs. In the case of stock of PFICs directly or indirectly owned by the corporation for which an election under section 1296 is in effect, the corporation must provide the following information (to the extent such information isn’t otherwise identifiable on Schedule K-3), on either an aggregate basis or an entity-by-entity basis (except as provided below).
Amounts included in income under section 1296(a)(1).
Amounts deducted from income under section 1296(a)(2). In the case of PFIC stock owned directly or indirectly by the corporation for which an election under section 1296 is in effect and with respect to which the corporation is engaged in a trade or business described in section 1411(c)(2), the corporation may aggregate this information with other income derived by the corporation that is net investment income under section 1411(c) (1)(A)(ii).
Section 1291 funds. In the case of stock of PFICs directly or indirectly owned by the corporation with respect to which direct or indirect shareholders are subject to section 1291, the corporation must provide the following information (to the extent such information isn’t otherwise identifiable on Schedule K-3), on an entity-by-entity basis.
Excess distributions made by a PFIC with respect to which the shareholder is subject to section 1291.
Gains derived with respect to the disposition of stock of a PFIC with respect to which a shareholder is subject to section
Section 199A information (code V). The qualified business income (QBI) deduction may be taken by eligible taxpayers, including individuals and some trusts and estates. The deduction is determined at the shareholder level. S corporations are required to report information necessary for their shareholders to figure the deduction. Use the code with an asterisk (V*) in box 17 on each shareholder’s Schedule K-1 and enter “STMT” in the entry space to indicate that the information is provided on an attached statement separately identifying the shareholder’s pro rata share of:
Note: The S corporation must report the pro rata share of qualified items of income, gain, deduction, and loss from a PTP so that shareholders can determine their qualified PTP income. However, W-2 wages and UBIA of qualified property from the PTP shouldn’t be reported because shareholders can’t use that information in figuring their QBI deduction.
S corporations should use Statement A—QBI Pass-Through Entity Reporting , or a substantially similar statement, to report each shareholder’s pro rata information from each trade or business, including QBI items, W-2 wages, UBIA of qualified property, qualified PTP items, and section 199A dividends by attaching the completed statement(s) to each shareholder’s Schedule K-1. The S corporation should also use Statement A to report each shareholder’s pro rata share of QBI items, W-2 wages, UBIA of qualified property, qualified PTP items, and section 199A dividends reported to the S corporation by another entity.
S corporations should use Statement B—QBI Pass-Through Entity Aggregation Election(s) , or a substantially similar statement, to report aggregated trades or businesses and provide supporting information to shareholders on each Schedule K-1.
S corporations should use Statement C—QBI Pass-Through Entity Reporting—Patrons of Specified Agricultural and Horticultural Cooperatives , or a substantially similar statement, to report pro rata QBI and W-2 wages allocable to qualified payments from a specified agricultural or horticultural cooperative for each trade or business. This statement should also be used to report each shareholder’s pro rata section 199A(g) deduction reported to the S corporation by the specified cooperative.
The S corporation must also report all QBI information reported to it by any entity in which the S corporation has an ownership interest.
Qualified items of income, gain, deduction, and loss;
W-2 wages;
Unadjusted basis immediately after acquisition (UBIA) of qualified property;
Qualified publicly traded partnership (PTP) items; and
Section 199A dividends, also known as qualified REIT dividends.
Caution: Don’t add amounts into a single number and report it in box 17 on Schedule K-1. The section 199A information must be separately identified for each trade or business the S corporation directly conducts, including specified service trades or businesses.
The S corporation must make an initial determination of which items are qualified items of income, gain, deduction, and loss at its level and report to each shareholder their pro rata share of all items that may be qualified items at the shareholder level. These items must be separately stated where necessary for the shareholder to figure the deduction. See Determining the S corporation’s QBI or qualified PTP items, later. The shareholder must then determine whether each item is includible in its QBI.
In addition, the S corporation must also report whether any of its trades or businesses are specified service trades or businesses (SSTBs) and identify on the statement any trades or businesses that are aggregated.
Determining the S corporation’s qualified trades or businesses. The S corporation’s qualified trades or businesses include its section 162 trades or businesses, except for SSTBs, or the trade or business of providing services as an employee. A section 162 trade or business generally includes any activity if the taxpayer’s primary purpose for engaging in the activity is for income or profit and the S corporation is involved in the activity with continuity and regularity. For more information on what qualifies as a trade or business for purposes of section 199A, see the instructions for Form 8995, Qualified Business Income Deduction Simplified Computation, or Form 8995-A, Qualified Business Income Deduction.
Rental real estate. Rental real estate may constitute a trade or business for purposes of the QBI deduction if the rental real estate:
The determination of whether rental real estate constitutes a trade or business for purposes of the QBI deduction is made by the S corporation. The S corporation must first make this determination and then only include the pro rata share of QBI information for rental real estate that constitutes a trade or business on the statement provided to shareholders. Rental real estate that doesn’t meet any of the three conditions noted above doesn’t constitute a trade or business for purposes of the QBI deduction and must not be included in the QBI information provided to shareholders.
Rises to the level of a trade or business under section 162;
Satisfies the requirements for the rental real estate safe harbor in Revenue Procedure 2019-38, 2019-42 I.R.B. 942; or
Meets the self-rental exception (that is, the rental or licensing of property to a commonly controlled trade or business conducted by an individual or relevant pass-through entity) described in Regulations section 1.199A-1(b)(14).
Instructions for Form 1120-S (2025) 43
Specified service trades or businesses excluded from qualified trades or businesses. SSTBs are generally excluded from the definition of a qualified trade or business. An SSTB is any trade or business providing services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investing and investment management, trading or dealing in securities, partnership interests, or commodities, or any other trade or business where the principal asset is the reputation or skill of one or more of its employees or owners. The term “any trade or business” where the principal asset is the reputation or skill of one or more of its employees or owners means any trade or business that consists of (i) a trade or business in which a person receives fees, compensation, or other income for endorsing products or services; (ii) a trade or business in which a person licenses or receives fees, compensation, or other income for the use of an individual’s image, likeness, name, signature, voice, trademark, or any other symbols associated with the individual’s identity; or (iii) receiving fees, compensation, or other income for appearing at an event or on radio, television, or another media format.
Note: S corporations must separately report QBI information for all trades or businesses engaged in by the S corporation, including SSTBs, and must also identify which trades or businesses are SSTBs.
Aggregation of trades or businesses. An S corporation engaged in more than one trade or business may choose to aggregate multiple trades or businesses into a single trade or business for purposes of section 199A if it meets the following requirements.
The same person or group of persons, either directly or through attribution, owns 50% or more of each trade or business for a majority of the tax year, including the last day of the tax year, and all trades or businesses use the same tax year-end;
None of the trades or businesses is an SSTB; and
The trades or businesses to be aggregated meet at least two of the following three factors:
a. They provide products, property, or services that are the same or that are customarily offered together;
b. They share facilities or share significant centralized business elements, such as personnel, accounting, legal, manufacturing, purchasing, human resources, or information technology resources; or
c. They are operated in coordination with or reliance upon one or more of the businesses in the aggregated group.
If the S corporation chooses to aggregate multiple trades or businesses, it must report the aggregation on Statement B, or a substantially similar statement, and attach it to each Schedule K-1. The statement must provide the information necessary to identify each separate trade or business included in each aggregation, a description of the aggregated trades or businesses, and an explanation of the factors met that allow the aggregation in accordance with Regulations section 1.199A-4. The aggregation statement must be completed each year to show the S corporation’s trade or business aggregations. Failure to disclose the aggregations may cause them to be disaggregated.
The S corporation’s aggregations must be reported consistently for all subsequent years, unless there is a change in facts and circumstances that changes or disqualifies the aggregation. The S corporation must provide a written explanation for any changes to prior year aggregations that describes the change in facts and circumstances.
If the S corporation directly or indirectly owns an interest in another relevant pass-through entity (RPE) that aggregates multiple trades or businesses, it must attach a copy of the RPE’s aggregation to each Schedule K-1. The S corporation can’t break apart the aggregation of another RPE, but it may add trades or businesses to the aggregation, assuming the requirements above are satisfied.
Determining the S corporation’s QBI or qualified PTP items. The S corporation’s items of QBI include qualified items of income, gain, deduction, and loss from the S corporation’s trades or businesses that are effectively connected with the conduct of a trade or business within the United States. This may include, but isn’t limited to, items such as ordinary business income or losses, section 1231 gains or losses, section 179 deductions, and interest from debt-financed distributions.
QBI may also include rental income or losses or royalty income if the activity rises to the level of a trade or business or is a qualified trade or business for purposes of section 199A and gambling gains or losses, but only if the S corporation is engaged in the trade or business of gambling. Whether an activity rises to the level of a trade or business must be determined at the entity level and, once made, is binding on shareholders.
Qualified PTP items include the S corporation’s share of qualified items of income, gain, deduction, and loss from a PTP and may also include gain or loss recognized on the disposition of the S corporation’s partnership interest that isn’t treated as a capital gain or loss.
QBI and qualified PTP items don’t include the following:
Items that aren’t properly includible in income;
Income that isn’t effectively connected with the conduct of business within the United States (go to IRS.gov/ECI for more information);
Items that are treated as capital gain or loss under any provision of the Internal Revenue Code;
Dividends or dividend equivalents, including qualified REIT dividends;
Interest income (unless received in connection with the trade or business);
Wage income;
Commodities transactions or foreign currency gains or losses described in sections 954(c)(1)(C) or (D);
Income, loss, or deductions from notional principal contracts under section 954(c)(1)(F);
Annuities (unless received in connection with the trade or business);
Guaranteed payments described in section 707(c) received by the entity for services rendered to a partnership; or
Payments described in section 707(a) received by the entity for services rendered to a partnership.
44 Instructions for Form 1120-S (2025)
QBI Flowchart
| S corporations may use this flowchart to determine if an item of income, gain, deduc shareholders. | ction, or loss is includible | in QBI reportable to |
|---|---|---|
| Questions | Yes | No |
| 1. Is the item effectively connected with the conduct of a trade or business within the United States? |
Continue to next question. | **Stop.**This item isn’t QBI. |
| 2. Is the item attributable to a trade or business (this may include section 1231 gain (loss), section 179 deductions, interest from debt-financed distributions, etc.)? Examples of an item not considered attributable to the trade or business at the entity level include gambling income (loss) where the entity isn’t engaged in the trade or business of gambling, income (loss) from vacation properties when the entity isn’t in that trade or business, activities not engaged in for profit, etc. |
Continue to next question. | **Stop.**This item isn’t QBI. |
| 3. Is the item treated as a capital gain or loss under any provision of the Internal Revenue Code or is it a dividend or dividend equivalent? |
**Stop.**This item isn’t QBI. | Continue to next question. |
| 4. Is the item interest income other than interest income properly allocable to a trade or business? (Note that interest income attributable to an investment of working capital, reserves, or similar accounts isn’t properly allocable to a trade or business). |
**Stop.**This item isn’t QBI. | Continue to next question. |
| 5. Is the item an annuity, other than an annuity received in connection with the trade or business? |
**Stop.**This item isn’t QBI. | Continue to next question. |
| 6. Is the item gain or loss from a commodities transaction or foreign currency gain or loss described in sections 954(c)(1)(C) or (D)? |
**Stop.**This item isn’t QBI. | Continue to next question. |
| 7. Is the item gain or loss from a notional principal contract under section 954(c)(1)(F)? |
**Stop.**This item isn’t QBI. | Continue to next question. |
| 8. Is the item of income or loss from a qualified publicly traded partnership? |
This item is a qualified PTP item.Report this item as qualified PTP income or loss, subject to shareholder-specific determinations, and check the PTP box. |
This item is QBI.Report this item as QBI subject to shareholder-specific determinations. |
Specific Instructions for Statement A—QBI Pass-Through Entity Reporting.
QBI or qualified PTP items. The S corporation must first determine if it is engaged in one or more trades or businesses. It must then determine if any of its trades or businesses are SSTBs. It must also determine whether it has qualified PTP items from an interest in a PTP. It must indicate the status in the appropriate checkboxes for each trade or business (or aggregated trade or business) or PTP interest reported.
Note: SSTBs and PTPs can’t be aggregated with any other trade or business. So, if the aggregation box is checked, the SSTB and PTP boxes for that specific aggregated trade or business shouldn’t be checked.
Next, the S corporation must report to each shareholder their pro rata share of all items that are QBI or qualified PTP items for each trade or business the S corporation owns directly or indirectly. Use the QBI flowchart above to determine if an item is reportable as a QBI item or qualified PTP item subject to shareholder-specific determination.
The descriptions on the statement generally match the descriptions reported on Schedule K-1. So the amounts should reflect each trade or business’s portion of the qualified items of income, gain, deduction, or loss reported in the applicable box of the shareholder’s Schedule K-1. For example, the amount reported on the “Ordinary business income (loss)” line of this statement should reflect the attributable portion of qualified items of income, gain, deduction, and loss for each trade or business included in the “Ordinary business income (loss)” reported in box 1 of the shareholder’s Schedule K-1. Each item included under “Other income (loss)” and “Other deductions” must be stated separately, identifying the nature and amount of each item.
W-2 wages and UBIA of qualified property. The S corporation must determine the W-2 wages and UBIA of qualified property properly allocable to QBI for each qualified trade or business, including SSTBs, and report the pro rata share to each shareholder on Statement A, or a substantially
similar statement, attached to Schedule K-1. This includes the pro rata share of W-2 wages and UBIA of qualified property reported to the S corporation from any qualified trades or businesses of an RPE the S corporation owns directly or indirectly. However, S corporations that own a direct or indirect interest in a PTP may not include any amounts for W-2 wages or UBIA of qualified property from the PTP, as the W-2 wages and UBIA of qualified property from a PTP aren’t allowed in figuring the W-2 wage and UBIA limitations.
The W-2 wages are amounts paid to employees described in sections 6051(a)(3) and (8). If the S corporation conducts more than one trade or business, it must allocate the W-2 wages among its trades or businesses. See Revenue Procedure 2019-11, 2019-09 I.R.B. 742 for more information. The unadjusted basis of qualified property is figured by adding the unadjusted basis of all qualified assets immediately after acquisition. Qualified property includes all tangible property subject to depreciation under section 167 for which the depreciable period hasn’t ended that is held and used for the production of QBI by the trade or business during the tax year and held on the last day of the tax year. The depreciable period ends on the later of 10 years after the property is placed in service or the last day of the full year for the applicable recovery period under section 168.
Section 199A dividends. The S corporation must report the pro rata share of any section 199A dividends, also known as qualified REIT dividends, to each shareholder on Statement A, or a substantially similar statement, attached to Schedule K-1. Section 199A dividends don’t have to be separately reported by trades or businesses and can be reported as a single amount to shareholders. Section 199A dividends include any dividend the S corporation receives from a REIT held for more than 45 days, for which the payment isn’t obligated to someone else, isn’t a capital gain dividend under section 857(b)(3), and isn’t a qualified dividend under section 1(h)(11), plus any qualified REIT dividends received from a RIC.
Fiscal year S corporations. For purposes of determining the QBI or qualified PTP items, UBIA of qualified property, and the
Instructions for Form 1120-S (2025) 45
aggregate amount of qualified section 199A dividends, fiscal year-end S corporations include all items from the fiscal tax year.
For purposes of determining W-2 wages, fiscal year-end S corporations include amounts paid to employees under sections 6051(a)(3) and (8) for the calendar year ended with or within the
S corporation’s tax year. If the S corporation conducts more than one trade or business, it must allocate W-2 wages among its trades or businesses. See Revenue Procedure 2019-11 for more information.
Statement A—QBI Pass-Through Entity Reporting
| S corporation’s name: | S corporation’s name: | S corporation’s name: | S corporation’s name: | S corporation’s EIN: | S corporation’s EIN: |
|---|---|---|---|---|---|
| Shareholder’s name: | Shareholder’s name: | Shareholder’s name: | Shareholder’s identifying number: | Shareholder’s identifying number: | Shareholder’s identifying number: |
| Shareholder’s share of: | Shareholder’s share of: | Shareholder’s share of: | Trade or Business 1 | Trade or Business 2 | Trade or Business 3 |
| Shareholder’s share of: | Shareholder’s share of: | Shareholder’s share of: | PTP Aggregated SSTB |
PTP Aggregated SSTB |
PTP Aggregated SSTB |
| QBI or qualified PTP items subject to shareholder-specific determinations: | |||||
| Ordinary business income (loss) . . . . . . . . . . . . . . . |
|||||
| Rental income (loss) . . . . . . . . . . . . . . . . . . . . . |
|||||
| Royalty income (loss) . . . . . . . . . . . . . . . . . . . . |
|||||
| Section 1231 gain (loss) . . . . . . . . . . . . . . . . . . . |
|||||
| Other income (loss) . . . . . . . . . . . . . . . . . . . . . |
|||||
| Section 179 deduction . . . . . . . . . . . . . . . . . . . . |
|||||
| Other deductions . . . . . . . . . . . . . . . . . . . . . . . |
|||||
| W-2 wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | |||||
| UBIA of qualified property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | |||||
| Section 199A dividends . . . . . | Section 199A dividends . . . . . |
Specific instructions for Statement B—QBI Pass-Through Entity Aggregation Election(s). If the S corporation elects to aggregate more than one trade or business that meets all the requirements to aggregate, the S corporation must report the aggregation to shareholders on Statement B, or a substantially similar statement, and attach it to each Schedule K-1. The S corporation must indicate trades or businesses that were aggregated by checking the appropriate box on Statement A for each aggregated trade or business. The S corporation must also provide a description of the aggregated trade or business and an explanation of the factors met that allow the aggregation.
The aggregation statement must be completed each year to show the S corporation’s trade or business aggregations. Failure to disclose the aggregations may cause them to be
disaggregated. The S corporation’s aggregations must be reported consistently for all subsequent years, unless there is a change in facts and circumstances that changes or disqualifies the aggregation. The S corporation must provide a written explanation for any changes to prior year aggregations that describes the change in facts and circumstances.
If the S corporation holds a direct or indirect interest in an RPE that aggregates multiple trades or businesses, the S corporation must also include a copy of the RPE’s aggregations with each shareholder’s Schedule K-1. The S corporation can’t break apart the aggregation of another RPE, but it may add trades or businesses to the aggregation, assuming the aggregation requirements are satisfied.
46 Instructions for Form 1120-S (2025)
Statement B—QBI Pass-Through Entity Aggregation Election(s)
| S corporation’s name: | S corporation’s EIN: |
|---|---|
| Trade or business aggregation 1 Provide a description of the aggregated trades or businesses and an explanation of the factors met that allow the aggregation in accordance with Regulations section 1.199A-4. In addition, if the S corporation holds a direct or indirect interest in a relevant pass-through entity (RPE) that aggregates multiple trades or businesses, attach a copy of the RPE’s aggregations. Has this trade or business aggregation changed from the prior year? This includes changes in the aggregation due to a trade or business being formed, acquired, or disposed of or having ceased operations. If yes, explain. ** **If the S corporation has more than one aggregated group, attach additional Statements B. Name the additional aggregations 2, 3, 4, etc. |
Specific instructions for Statement C—QBI Pass-Through Entity Reporting—Patrons of Specified Agricultural and Horticultural Cooperatives.
QBI items and W-2 wages allocable to qualified payments. If the S corporation is a patron of a specified agricultural or horticultural cooperative, the S corporation must provide the pro rata share of QBI items and W-2 wages allocable to qualified payments from each trade or business to each of its shareholders on Statement C, or a substantially similar statement, and attach it to each Schedule K-1 so each shareholder can figure their patron reduction under section 199A(b)(7).
QBI items and W-2 wages allocable to qualified payments include QBI items included on Statement A that are allocable to the qualified payments reported to the S corporation on Form 1099-PATR from the cooperative. Section 199A(g) deduction. The S corporation must report to its shareholders their pro rata share of any section 199A(g) deduction passed through from the cooperative, as reported on Form 1099-PATR. Section 199A(g) deductions don’t have to be separately reported by trades or businesses and can be reported as a single amount to shareholders.
| Statement C—QBI Pass-Through Entity Reporting—Patrons of Specifie Cooperatives | ed Agricultural and Horticultural | ||||
|---|---|---|---|---|---|
| S corporation’s name: | S corporation’s name: | S corporation’s name: | S corporation’s name: | S corporation’s EIN: | S corporation’s EIN: |
| Shareholder’s name: | Shareholder’s name: | Shareholder’s name: | Shareholder’s identifying number: | Shareholder’s identifying number: | Shareholder’s identifying number: |
| Shareholder’s share of: | Shareholder’s share of: | Shareholder’s share of: | Trade or Business 1 | Trade or Business 2 | Trade or Business 3 |
| Shareholder’s share of: | Shareholder’s share of: | Shareholder’s share of: | PTP Aggregated SSTB |
PTP Aggregated SSTB |
PTP Aggregated SSTB |
| QBI items allocable to qualified payments subject to shareholder-specific determinations: | |||||
| Ordinary business income (loss) . . . . . . . . . . . . . . . |
|||||
| Rental income (loss) . . . . . . . . . . . . . . . . . . . . . . |
|||||
| Royalty income (loss) . . . . . . . . . . . . . . . . . . . . . |
|||||
| Section 1231 gain (loss) . . . . . . . . . . . . . . . . . . . . |
|||||
| Other income (loss) . . . . . . . . . . . . . . . . . . . . . . |
|||||
| Section 179 deduction . . . . . . . . . . . . . . . . . . . . . |
|||||
| Other deductions . . . . . . . . . . . . . . . . . . . . . . . . |
|||||
| W-2 wages allocable to qualified payments . . . . . . . . . . . . . . . . . . . . | |||||
| Section 199A(g) deduction . . . . . . . . . . . . . . . . |
Codes W through Z. Reserved for future use.
Excess taxable income (code AA). 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. If so, enter the amount from Form 8990, Part III,
line 41, for excess taxable income on Schedule K. Report the shareholder’s pro rata share in box 17 of Schedule K-1.
Excess business interest income (code AB). If the S corporation is required to file Form 8990, it may determine it has excess business interest income. If so, enter the amount from
Instructions for Form 1120-S (2025) 47
Form 8990, Part III, line 42, for excess taxable income on Schedule K. Report the shareholder’s pro rata share in box 17 of Schedule K-1.
Gross receipts for section 448(c) (code AC). Provide information shareholders need to complete the gross receipts test for section 448(c) purposes. See the Instructions for Form 8990 for details.
Codes AD through AI. Reserved for future use.
Excess business loss limitation (code AJ). If the corporation has deductions attributable to a business activity, attach a statement to each shareholder's Schedule K-1 showing the aggregate gross income or gain and the aggregate deductions from the business activity that shareholders need, along with other information, to figure any excess business loss limitation. See section 461(l) and the Instructions for Form 461 for details.
Codes AK through AM. Reserved for future use.
Farming and fishing business (code AN). In box 17 of Schedule K-1, enter code AN followed by an asterisk and enter “STMT” in the entry space for the dollar amount. Attach a statement to Schedule K-1 that provides the shareholder’s pro rata share of the following amounts.
Gross farming and fishing income the shareholder will need to report on Schedule E (Form 1040), line 42. See the Instructions for Schedule E (Form 1040) for details.
Gross farming and fishing income and gains as well as losses and deductions attributable to farming and fishing business activities the shareholder may need to figure the amounts to report on Schedule J (Form 1040). See section
Code AO. Reserved for future use.
Inversion gain (code AP). Any income or gain reported on Schedule K, lines 1 through 10, that qualifies as inversion gain if the corporation is an expatriated entity or is a partner in an expatriated entity. For details, see section 7874. Attach a statement to Form 1120-S that shows the amount of each type of income or gain included in the inversion gain. The corporation must report each shareholder’s pro rata share of the inversion gain in box 17 of Schedule K-1 using code AP. Attach a statement to Schedule K-1 that shows the shareholder’s pro rata share of the amount of each type of income or gain included in the inversion gain.
Codes AQ and AR. Reserved for future use.
Qualifying advanced coal project property and qualifying gasification project property (code AS). Basis in qualifying advanced coal project property and qualifying gasification or advanced energy project property. Attach a statement to Schedule K-1 that provides the shareholder’s pro rata share of the basis amounts that the shareholder will need to figure the amounts to report on Part II, lines 1a, 2a, and 3a or Form 3468 lines 4a and 5a. See the Instructions for Form 3468 for details.
Qualifying advanced energy project property (code AT). Basis in qualifying advanced energy project property. Attach a statement to Schedule K-1 that provides the shareholder’s pro rata share of the basis amounts that the shareholder will need to figure the amounts to report on Form 3468, Part III, line 1a. See the Instructions for Form 3468 for details.
Advanced manufacturing investment property (code AU). Basis in advanced manufacturing investment facility property. Attach a statement to Schedule K-1 that provides the shareholder’s pro rata share of the basis amounts the shareholder will need to figure the amounts to report on Form 3468, Part IV, line 1b. See the Instructions for Form 3468 for details.
Clean electricity investment property (code AV). Basis in advanced manufacturing investment facility property. Attach a statement to Schedule K-1 that provides the shareholder’s pro rata share of the basis amounts the shareholder will need to figure the amounts to report on Form 3468, Part V, line 1a. See the Instructions for Form 3468 for details.
Reportable transactions (code AW). If the corporation participates in a transaction that must be disclosed on Form 8886 (discussed earlier), both the corporation and its shareholders may be required to file Form 8886. The corporation must determine if any of its shareholders are required to disclose the transaction and provide those shareholders with information they will need to file Form 8886. This determination is based on the category(ies) under which a transaction qualified for disclosures. See the Instructions for Form 8886 for details.
Codes AX through AZ. Reserved for future use.
Domestic research or experimental expenditures (code BA). Include the shareholder’s distributable share of qualified expenditures as defined under section 59(e)(2) that were currently deducted on the corporations tax return. If a shareholder makes an election under section 59(e) to amortize the qualified expenditures, the shareholder will need to know how much of the qualified expenditures were included as deductions in the Schedule K-1.
Other information (code ZZ). Any other information the shareholders need to prepare their tax returns, including information needed to prepare state and local tax returns.
- On an attached statement that must be titled, “Section 1062 Information Schedule K-1”, use box 17, code ZZ to provide shareholders information from Schedule A (Form 1062), Part I and their distributable share of Part II. See Schedule A (Form
- and its instructions for additional information.
- For tax years ending after July 4, 2025, section 139L, as enacted by P.L. 119-21, allows a qualified lender to exclude 25% of the interest income received on any qualified real estate loan secured by rural or agricultural real property. Use code ZZ to provide shareholders their distributable share. See Notice 2025-71, 2025-50 I.R.B. 779, available at IRS.gov/irb/ 2025-50_IRB#NOT-2025-71 .
Line 18. More Than One At-Risk Activity
If the corporation entered into more than one activity subject to the at-risk rules (at-risk activity), the corporation is required to provide information separately for each at-risk activity to its shareholders. This information is reported on an attachment to Schedule K-1. Check the box to indicate there is more than one at-risk activity for which a statement is attached. See At-Risk Activity Reporting Requirements under At-Risk Limitations , earlier, for details.
Line 19. More Than One Passive Activity
If the corporation entered into more than one activity (determined for purposes of the passive activity loss and credit limitations), the corporation is required to provide information separately for each activity to its shareholders. This information is reported on an attachment to Schedule K-1. Check the box to indicate there is more than one passive activity for which a statement is attached. See Passive Activity Reporting Requirements under Passive Activity Limitations , earlier, for details.
48 Instructions for Form 1120-S (2025)
Reconciliation¶
Line 18. Income/Loss Reconciliation (Schedule K Only) To the extent the corporation has an amount on Schedule K, line 16f (foreign taxes paid and accrued), subtract that amount for purposes of figuring the corporation’s net income (loss). The amount reported on line 18 must be the same as the amount reported on Schedule M-1, line 8, or Schedule M-3 (Form 1120-S), Part II, line 26, column (d).
Schedule L. Balance Sheets per Books¶
The balance sheets should agree with the corporation’s books and records. Schedule L isn’t required to be completed if the corporation answered “Yes” to question 11 on Schedule B. If the corporation is required to complete Schedule L, include total assets reported on Schedule L, line 15, column (d), on page 1, item F.
Corporations with total assets of $10 million or more on the last day of the tax year must file Schedule M-3 (Form 1120-S) instead of Schedule M-1. However, see the instructions for Schedule M-1, later. See the separate Instructions for Schedule M-3 (Form 1120-S) for provisions that also affect Schedule L.
If the S election terminated during the tax year and the corporation reverted to a C corporation, the year-end balance sheet should generally agree with the books and records at the end of the C short year. However, if the corporation elected under section 1362(e)(3) to have items assigned to each short year under normal tax accounting rules, the year-end balance sheet should agree with the books and records at the end of the S short year.
Schedule M-1. Reconciliation of Income (Loss) per Books With Income (Loss) per Return¶
In completing Schedule M-1, the following apply.
Schedule M-1 isn’t required to be completed if the corporation answered “Yes” to question 11 on Schedule B.
Corporations with total assets of $10 million or more on the last day of the tax year must file Schedule M-3 (Form 1120-S) instead of Schedule M-1.
A corporation filing Form 1120-S that isn’t required to file Schedule M-3 may voluntarily file Schedule M-3 instead of Schedule M-1. See the Instructions for Schedule M-3 (Form 1120-S) for more information.
For 2025, corporations that (a) are required to file Schedule M-3 (Form 1120-S) and have less than $50 million total assets at the end of the tax year, or (b) aren’t required to file Schedule M-3 (Form 1120-S) and voluntarily file Schedule M-3 (Form 1120-S), must either (i) complete Schedule M-3 (Form 1120-S) entirely, or (ii) complete Schedule M-3 (Form 1120-S) through Part I, and complete Schedule M-1 (Form 1120-S), instead of completing Schedule M-3 (Form 1120-S), Parts II and III. If the corporation chooses to complete Schedule M-1 instead of completing Schedule M-3, Parts II and III, Schedule M-1, line 1, must equal Schedule M-3, Part I, line 11. See the Instructions for Schedule M-3 (Form 1120-S) for more information.
Line 2 Report on this line income included on Schedule K, lines 1, 2, 3c, 4, 5a, 6, 7, 8a, 9, and 10 not recorded on the books this year. Describe each such item of income. Attach a statement if necessary.
Line 5. Tax-Exempt Securities Include on this line:
State and local government obligations, the interest on which is excludable from gross income under section 103(a); and
Stock in a mutual fund or other regulated investment company that distributed exempt-interest dividends during the tax year of the corporation.
Line 24. Retained Earnings If the corporation maintains separate accounts for appropriated and unappropriated retained earnings, it may want to continue such accounting for purposes of preparing its financial balance sheet. Also, if the corporation converts to C corporation status in a subsequent year, it will be required to report its appropriated and unappropriated retained earnings on separate lines of Form 1120, Schedule L.
Line 3b. Travel and Entertainment Include any of the following applicable expenses.
Entertainment expenses not deductible under section 274(a).
Meal expenses not deductible under section 274(n).
Qualified transportation fringes not deductible under section 274(a)(4).
Expenses for the use of an entertainment facility.
The part of business gifts over $25.
Expenses of an individual over $2,000 that are allocable to conventions on cruise ships.
Employee achievement awards of nontangible property or tangible property over $400 ($1,600 if part of a qualified plan).
The cost of skyboxes.
The part of luxury water travel expenses not deductible under section 274(m).
Expenses for travel as a form of education.
Nondeductible club dues.
Other nondeductible travel and entertainment expenses.
Line 25. Adjustments to Shareholders’ Equity The following are some examples of adjustments to report on this line.
Unrealized gains and losses on securities held “available for sale.”
Foreign currency translation adjustments.
The excess of additional pension liability over unrecognized prior service cost.
Guarantees of employee stock ownership plan (ESOP) debt.
Compensation related to employee stock award plans.
Tip: If the corporation has an amount on Schedule K, line 16f (foreign taxes paid and accrued), take that amount into account for purposes of figuring expenses and deductions to enter on lines 3 and 6.
If the total adjustment to be entered is a negative amount, enter the amount in parentheses.
Instructions for Form 1120-S (2025) 49
Get a plain-English answer with a citation back to this text.
Ask AI about this code