Discussion:Sec 179 & disposition of S stock

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Discussion Forum Index --> Tax Questions --> Sec 179 & disposition of S stock

Mtmckeecpa (talk|edits) said:

11 August 2006

3 individuals own 100% of S corp. S corp is an internet business; over the last 3 years business has invested about $50k to $90k each year in IRC 179 assets.

Recently had a cash offer to buy STOCK of the S corp.

Question:

If the 3 shareholders sell their STOCK in the business will they have recapture on the 179 deduction taken in prior years.

I don't think there is any recapture but I can't find anything...

Any comments?

Jdugancpa (talk\|edits) said:	11 August 2006
I don't think so either, but I'll wait for smarter people to weigh in.

JCTMSTx (talk\|edits) said:	12 August 2006
The transaction is a sale of stock (Capital asset)not a sale of assets. The gain is therefore a capital gain from the sale of stock. Since the assets where written done to zero (section 179 witeoffs), their (sellers)basis would be zero in calculating the resultant long term capital gain. This in essence is the recapture.

Dennis (talk\|edits) said:	12 August 2006
The concept that there is no §179 recapture if the assets are now sold by the new shareholder would, if true, irritate me greatly.

JCTMSTx (talk\|edits) said:	12 August 2006
Let me put in some numbers. The 3 original owners invested 50K,70K,90K. Deducting 210K. Then sold the stock at FMV of 210K. They recognized a taxable gain of 210K. If the new owner sold it for their basis of 210K (what they paid for the stock) there is nothing to recapture since the previous shareholders already paid the tax.

Dennis (talk\|edits) said:	12 August 2006
Year one: Original shareholder buys fat SUV for $60,000. 100% use. §179. Writes off entire amount. Year two. New shareholder pays $120,000 for stock. Sells SUV for $40,000. Corporation has to recognize recapture. Has to pass to new shareholder.

JCTMSTx (talk\|edits) said:	14 August 2006
Under your scenario new shareholder would recapture if they paid $120,000 for a $40,000 SUV. The other $80,000 would have been Goodwill.

Dennis (talk|edits) said:

14 August 2006

Which has to do with what? The recapture would occur if they paid $10,000 for the stock. Amount paid for stock has nothing to do with recapture recognition. Original shareholder could have the deduction suspended on his return and still nothing would change. The point is the corp has an asset on which the §179 deduction was claimed and if recapture occurs the income recognition flows to the shareholder, whomever he is at the time.