Reporting suspended losses in year of sale S Corp

[cred65]

The shareholders (3) of an S corp. (which I did not represent) had $400K in accumulated suspended losses for 2000-2006. The assets of the company were sold and the tax preparer sent final K-1’s to the shareholders (I represent 2) reporting $765K in Sec. 1231 capital gains.

Q. How are the suspended losses treated on the individual’s returns; As ordinary loss on Sch. E pg 2, or as capital loss on Sch. D?

TIA

[kcjenkins]

As I understand the facts, these suspended losses were ordinary, and thus would be reported on the E page 2.

[TAXBILLY]

Agree with KC. The losses retain their original character.

A more familiar situation is suspended losses from rental property.

taxbilly

[cred65]

Thanks KC & Taxbilly. That was my first choice.