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Schedule M-1 and M-2 Section 179 adjustments

Schedule M-1 adjustment

UltraTax CS will generate a Form 4797 Book-Tax Difference anytime the Book and Tax gains aren’t equal. You can view the book and tax gain/loss calculated for each disposed asset under the
Disposal
 tab. You can see a detailed calculation for the Book and Tax gain by selecting
Tax gain/(loss)
 or
Book gain/(loss)
 under the
Asset Disposal
 tab.
According to the IRS Form 1065 and Form 1120S instructions, the gain from the sale of Section 179 assets is reported on the partner’s or shareholder's 1040 individual return and not on the 1065 or 1120S return. For this reason, the tax gain will always be 0 (zero) for Section 179 assets resulting in a Form 4797 Book-Tax Difference equal to the full amount of book gain. This is true even if you set the book treatment equal to the tax.

1120S, Schedule M-2 adjustment

According to the Shareholder’s Instructions for Schedule K-1, separately stated items (including the sale of Section 179 assets) increase the Shareholder's stock basis. UltraTax CS automatically adds another addition adjustment to Form 1120S, Schedule M-2 for Sale of Section 179 Assets. UltraTax CS won’t make a corresponding adjustment to the Shareholder Basis Worksheet in the
Shareholder K-1
 package.
Both the Section 179 disposal information and the shareholder basis information will datashare to the shareholder's 1040 individual client. UltraTax/1040 increases the shareholder's basis by the gain from the sale of the Section 179 asset.

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