Updated October 16, 2026. Quick answer: Codes K through O in box 17 of Schedule K-1 (Form 1120-S) cover property sales and interest charges that follow them. Code K is a disposition of property that carried a section 179 deduction, code L is a recapture of that deduction, and codes M, N and O give the information for interest under sections 453(l)(3), 453A(c) and 1260(b). The instructions send a code K gain or loss to Form 4797.
What codes K to O report
Five codes cover property dispositions and the interest charges tied to them. This page covers a K-1 that has been received. Every other box is set out on the Schedule K-1 (Form 1120-S) boxes overview.
| Box 17 code | Title in the instructions | Where it goes |
|---|---|---|
| K | “Dispositions of property with section 179 deductions.” | “If the corporation passed through a section 179 expense deduction for the property, you must report the gain or loss, if any, and any recapture of the section 179 expense deduction for the property on your income tax return (see the Instructions for Form 4797 for details).” |
| L | “Recapture of section 179 deduction.” | “The corporation will report your share of any recapture of section 179 expense deduction” |
| M | “Section 453(l)(3) information.” | “Report the interest on Schedule 2 (Form 1040), line 14.” |
| N | “Section 453A(c) information.” | “The section 453A interest charge is reported on the “Other taxes” line of your tax returns.” |
| O | “Section 1260(b) information.” | “Report the interest on Schedule 2 (Form 1040), line 17z.” |
Code K: a sale of property that had a section 179 deduction
“The corporation will report your share of gain or loss on the sale, exchange, or other disposition of property for which a section 179 expense deduction was passed through to shareholders with code K.” The gain or loss goes to Form 4797, and the corporation supplies these items.
| Item | What the corporation provides for code K |
|---|---|
| 1 | “Description of the property.” |
| 2 | “Date the property was acquired and placed in service.” |
| 3 | “Date of the sale or other disposition of the property.” |
| 4 | “Your share of the gross sales price or amount realized.” |
| 5 | “Your share of the cost or other basis plus the expense of sale.” |
| 6 | “Your share of the depreciation allowed or allowable.” |
| 7 | “Your share of the section 179 expense deduction (if any) passed through for the property” |
| 8 | “If the disposition is due to a casualty or theft, any information you need to complete Form 4684.” |
| 9 | “If the sale was an installment sale, any information you need to complete Form 6252, Installment Sale Income.” |
The instructions also give a depreciation step for Form 4797: “To figure the depreciation allowed or allowable for Form 4797, line 22, add to the amount from item 6 above the amount of your share of the section 179 expense deduction, reduced by any unused carryover of the deduction for this property.” “This amount may be different from the amount of section 179 expense you deducted for the property if your interest in the corporation has changed.”
Code L: recapture when business use drops
“The corporation will report your share of any recapture of section 179 expense deduction if business use of any property for which the section 179 expense deduction was passed through to shareholders dropped to 50% or less before the end of the recapture period.” The corporation then gives two items: “Your share of the depreciation allowed or allowable (not including the section 179 expense deduction).” “Your share of the section 179 expense deduction (if any) passed through for the property and the corporation’s tax year(s) in which the amount was passed through.”
The original deduction is claimed through Form 4562 and the recapture idea is explained on the depreciation recapture page.
Codes M, N and O: installment sale and other interest
For code M: “The corporation will report any information you need to figure the interest due under section 453(l)(3) with respect to the disposition of certain timeshares and residential lots on the installment method.” “See section 453(l)(3) for details on how to figure the interest.”
For code N: “The corporation will report any information you need to figure the interest charge under section 453A(c) with respect to certain installment sales. See Pub. 537, Installment Sales.” “This information must include the following from each Form 6252 where the shareholder’s share of the selling price, including mortgages and other debts, is greater than $150,000.” “See Interest on Deferred Tax in Pub. 537 for additional details on how to compute the section 453A(c) interest.”
The installment form itself is Form 6252. The instructions for code K say that if the sale was an installment sale, the corporation will provide Form 6252 information and “will separately report your share of all payments received for the property in the following tax years.”
For code O: “If the corporation had gain from certain constructive ownership transactions, your tax liability must be increased by the interest charge on any deferral of gain recognition under section 1260(b).” “Enter “1260(b)” and the amount of the interest in the space to the left of line 17z.”
Limits and the corporation’s reporting
The instructions put the limits in a fixed order: “These limitations and the order in which you must apply them are as follows: the basis limitations, the at-risk limitations, the passive activity limitations, and the excess business loss limitations.” The amounts printed in Part III are before any of them. “The amounts shown in boxes 1 through 17 reflect your share of income, loss, deductions, credits, and other items from corporate business or rental activities without reference to limitations on losses, credits, or other items that may have to be adjusted”.
Some items carry their own limit first. “Other limitations may apply to specific deductions (for example, the section 179 expense deduction). Generally, specific limitations apply before the at-risk and passive loss limitations.”
Fiscal-year corporations shift the year. “If you file your tax return on a calendar-year basis, but the corporation files a return for a fiscal year, report the amounts on your tax return for the year in which the corporation’s fiscal year ends.”
The shareholder reports what the corporation reported. “Generally, you must report corporate items shown on your Schedule K-1 (and any attached statements) the same way that the corporation treated the items on its return.” If a figure looks wrong: “If you believe the corporation has made an error on your Schedule K-1, notify the corporation and ask for a corrected Schedule K-1.” “Don’t change any items on your copy of Schedule K-1.”
Which revision applies
The edition read for this page is the 2025 Shareholder’s Instructions for Schedule K-1 (Form 1120-S) and the 2025 Schedule K-1 (Form 1120-S) itself, which are the revisions irs.gov served when they were read on 2026-10-16. Check the revision printed on the Schedule K-1 you received and the matching instructions, because a later edition can change the box layout, the code letters and the reporting lines.
Common mistakes
- Treating a code K gain as a plain capital gain. The instructions say that if the corporation passed through a section 179 deduction for the property, the shareholder must report the gain or loss and any recapture of the deduction, and they send the reader to the Instructions for Form 4797.
- Using the amount of section 179 expense as the Form 4797 depreciation without the adjustment. The instructions add the shareholder’s share of the section 179 deduction to item 6, reduced by any unused carryover, and warn the result may differ if the interest in the corporation changed.
- Looking for the code N interest on a named line. The instructions say the section 453A interest charge is reported on the “Other taxes” line of the tax return, with the computation described in Pub. 537.
Related: Form 4797 sales of business property, Form 6252 installment sale income, Form 4562 depreciation and amortization, depreciation recapture in year one, and Schedule D (Form 1040).
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S corporation property sale installment decision
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Answer againSources
- 2025 Shareholder’s Instructions for Schedule K-1 (Form 1120-S): https://www.irs.gov/pub/irs-pdf/i1120ssk.pdf
- Schedule K-1 (Form 1120-S) (2025), Shareholder’s Share of Income, Deductions, Credits, etc.: https://www.irs.gov/pub/irs-pdf/f1120ssk.pdf
Read from the IRS documents linked above on October 16, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.