How to Figure Basis on 1120S Real Estate Investment Company

How to Figure Basis on 1120S Real Estate Investment Company

Calculating the basis of your real estate investment company is crucial for determining your potential tax liabilities. When it comes to an S corporation, such as a real estate investment company, the basis calculation can be a bit complex. In this article, we will discuss the steps for figuring basis on a 1120S real estate investment company.

Step 1: Start with Initial Investment

The basis of any investment usually starts with the initial capital contributed by the shareholder. This includes the cash and the fair market value of any property transferred to the company in exchange for stock. This initial investment forms the starting point for calculating the basis.

Step 2: Add Additional Capital Contributions

Any additional capital contributions made by the shareholders should be added to the basis. These could be in the form of cash injections, additional property transfers, or any other assets contributed to the company. Make sure to keep detailed records of these transactions.

Step 3: Allocate Profits and Losses

As an S corporation, the real estate investment company’s profits and losses flow through to the individual shareholders. It is essential to keep track of these allocations as they will impact the basis calculation. Profits increase the basis, while losses decrease it. Make sure to properly allocate these amounts to each shareholder based on their ownership percentage.

Step 4: Consider Distributions and Loans

Any distributions or loans taken by the shareholders from the company can affect the basis calculation. Distributions reduce the basis, while loans do not impact the basis. Keep a record of all distributions and loans made by the company to the shareholders to ensure accurate basis calculation.

How to Figure Basis on 1120S Real Estate Investment Company

Step 5: Account for Adjustments

There are several adjustments that can impact the basis of a real estate investment company. These could include items such as tax-exempt income, non-deductible expenses, and other special allocations. Make sure to account for these adjustments when calculating the basis to avoid any discrepancies.

Step 6: Calculate Ending Basis

Once you have accounted for all the contributions, allocations, distributions, loans, and adjustments, you can calculate the ending basis of the real estate investment company. This final figure will be crucial for determining the tax liabilities of the shareholders and the company itself.

Calculating the basis of a 1120S real estate investment company is a complex process that requires careful attention to detail. By following the steps outlined in this article, you can ensure an accurate basis calculation that will help you manage your tax liabilities effectively. Remember to keep detailed records of all transactions and consult with a tax professional if you need assistance with basis calculations.

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