Discussion:Asset and Depreciation at Conversion from S to C corp
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Discussion Forum Index --> Tax Questions --> Asset and Depreciation at Conversion from S to C corp
| 31 July 2006 | |
| This may be basic, but I need right answers. An S corporation converted to a C corporation. (S to C is not a typo.) Starting the C corp. book, how should the depreciable assets of S corp. be taken care of, reflecting this conversion?
(Q1) Can the C corp. simply transfer the balance-sheet numbers of S corp. and continue taking depreciation in sequence? (Q2) Should the C corp. use the lesser of remaining depreciable balance or FMV as the basis and start taking depreciation as a NEW asset? (Q3) Should the C corp. include the assets already fully depreciated in S corp. years to the balance sheet? (Q4) There are several assets the Sec 179 deduction applied in previous years, but those items still would not be fully depreciated if using MACRS, etc., instead. Because the Sec. 179 deductions are passed through to the S’ shareholders, not the company directly taking the deduction, can the C corp. start depreciating the assets, using FMV as the basis? Thank you for your help. | |
| 31 July 2006 | |
| Off the top of me head, I would say - nothing changes regarding depreciable assets. The only problem might be the reporting of the recapture of what was an S Corp 179 asset when it is now a C Corp asset.
That being said, I am very curious to know why client wants to convert from S to C? | |
Death&Taxes (talk|edits) said: | 31 July 2006 |
| Agree with Deaner; you have apples and apples. As to his question, back in 1990 I went from S to C when I realized the ramifications of the 2% rule and health insurance, but that is now a non-starter. Yet Section 105 plans might be a good reason, or other fringe benefits where the 2% rule is still in effect. I don't know if it is true anymore, but in the past some lenders did not like S Corps because no equity built up. Of course, most small C Corps are incorporated checkbooks, as we call them. | |
| 31 July 2006 | |
| Incorporated checkbooks . . . I have never heard that one, but I sure like it. | |
