Which item is not included on Schedule K of Form 1120S?

Schedule K of Form 1120S is used by S corporations to report various items of income, deductions, credits, and other items that affect the shareholders. It includes information that is necessary for shareholders to prepare their individual tax returns.

The correct choice pertains to the Section 179 depreciation deduction. This deduction allows businesses to write off the cost of qualifying business equipment in the year it is placed in service, rather than spreading the deduction over several years through depreciation. However, this deduction is typically reported on the entity’s tax return (Form 4562) and does not appear on Schedule K, as it specifically focuses on items that affect shareholders directly rather than deductions taken at the entity level.

In contrast, tax-exempt interest income, Section 1231 gains, and depreciation recapture are reported on Schedule K, as these items are important for shareholders to understand their tax implications and how these revenues and gains should be treated on their personal tax returns. For example, tax-exempt interest income does not contribute to the shareholders' taxable income but must still be reported, while Section 1231 gains and depreciation recapture have specific tax treatment that affects shareholders' capital gains and loss reporting.