Discussion:Basis on S Corp sale
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Discussion Forum Index --> Tax Questions --> Basis on S Corp sale
| 12 April 2008 | |
| OK, never done this before. Client will have a ton of tax to pay based on my understanding, which I want to confirm:
Client invested $7,500 in S Corp 15 years ago. K-1s show ~$300K in operating profits and ~$145K in property distributions (line 16D) over the years. Client sold his stock for $30,000 in 2007. To calculate his gain on the sale, basis is $7500 + $145,000 = $152,500, for a $122,000 capital gain, correct? In other words, the operating profits, for which he's paid tax all along, do not offset the distributions when it comes time to calculating his taxable gain on the sale. Please someone... just say yes (or no, and why) | |
Nancyshoemake (talk|edits) said: | 12 April 2008 |
| or is it a $122k loss? | |
| 12 April 2008 | |
| Loss? So a guy invests 7500, drains 145000 out of the company tax free over 15 years, and now gets to claim a loss on top of it?
Where am I missing it? | |
| 12 April 2008 | |
| By the way those squiggleys are supposed to indicate "approximately" 145000, not a MINUS 145000 | |
PaperworkCPA (talk|edits) said: | 12 April 2008 |
| When you say the K-1's show "approx 300k in operating profits" are you saying about 300,000 over the years in Box 1-Ordinary income(loss)? | |
| April 12, 2008 | |
| You're missing that he has paid tax on the $ 300,000 in operating profits. Look at one of the basis calculation forms for S Corps. Income increases basis, losses and non-deductible expenses as well as distributions decrease basis. Distributions in excess of basis are treated as capital gains, and increase basis. | |
| 12 April 2008 | |
| Basis Calculation is $7,500 + $300,000 - $145,000 = Basis of $162,500.
Sale proceeds of $30,000 less basis of $162,500 = Loss of $132,500 | |
| 12 April 2008 | |
| Yes, Paperwork, that is what I mean. $300k in box 1 over the years. $145 in box 16d over the years.
Belle, I'm not understanding your answer, which reads "distributions decrease basis. Distributions in excess of basis... increase basis". How can something that decreases basis excessively increase basis in the end?
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| 12 April 2008 | |
| To help with what Belle was saying re: "Distributions in excess of basis are treated as capital gains, and increase basis".
If your basis is $10 and you take a distribution of profit of $15 you have just taken a "distribution in excess of basis" of $5. That $5 gets reported on Schedule D as a long term capital gain (assuming you have owned the company for more than 1 year). Including that $5 as a capital gain on your return increases your basis from a negative $5 to $0. Thus, distributions in excess of basis are treated as capital gains, and increase basis. | |
| April 12, 2008 | |
| Because anything you've included in income/paid taxes on increases your basis. | |
| April 12, 2008 | |
| This is a bit scary....we've gone from the client having a $ 122,000 gain in the OP to a
$ 132,500 loss. That's a quarter of a million dollar difference. Yeah, big tax impact. Do the prior returns for fifteen years have any kind of basis schedule and/or tracking? | |
| 12 April 2008 | |
| Belle, client supplied K-1s from 2000 thru 2007, but only random mid year balance sheets ("stockholders equity") for the years 94 thru 99. So, the info is fragmentary, which is also scary. | |
Nancyshoemake (talk|edits) said: | 12 April 2008 |
| As long as you have the k-1 and they list the income and the distributions - you should be able to come up with the basis in the company. | |
| 12 April 2008 | |
| One final elementary question: The loss from sale of an S corp interest just goes on Schedule D? In other words, no other special forms I need to know about? | |
