Final 1120S Stockholders adjusted basis less than debt basis

Technical topics regarding tax preparation.
#1
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Assistance appreciated !

Final 1120S; after all distributions cash & property;
the ending stockholders adjusted basis $39,000 is less than the Debt basis at the end of year $96,000.

Am I correct in my thinking that the S/H will have a capital gain of $57,000 on his personal return?

Thank you in advance !

Hayden
 

#2
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In case someone else goes down this rabbit hole...

After research; now realize that the S/H's DEBT BASIS has NO bearing on determining the gain or loss on the sale of stock nor does it impact the taxability of a S Corporation's distribution.

The S/H 's debt basis is relevant only for determining the amount of loss a S/H may current use.

So adjusted basis $39,000, S/H note still owed $56,000 = $ ; Final distribution $70,000; capital loss $25,000.

Believe I have seen the light?
Thank you
 

#3
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99% of the time I have seen situations like this the basis was calculated incorrectly. I would not take a loss on dissolution unless I know exactly what transaction yielded more basis than cash. It could happen...most commonly if a shareholder buys out another shareholder. But I would insist on understanding exactly when and why it happened.

I don't believe that there is any way company that was always an s-corp with one owner, could ever have a loss on dissolution.
 

#4
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Thank you Tax Monkey!
 

#5
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I don't believe that there is any way company that was always an s-corp with one owner, could ever have a loss on dissolution.


If ever they paid tax on excess distributions or gain on repayment of shareholder loans?
 

#6
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I would have to go back & look regarding paying tax on gain on repayment of S/H loan.

began 2007 so it may be possible..
 

#7
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Generally, on an S-Corp the shareholder basis is equal to the R/E, capital stock, APIC, and loans from shareholder. There are several things that will throw this off though which is why I track any differences each year.
 

#8
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Thank you NIghtsnorkeler; I Will!!
 


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