When a client sells interest or stock - usually capital account (if they file 1065) is transferred to the buyer and I use the ending basis balance as his "Cost" and report the gain/loss of the sale of stock/interest on his personal return schedule 8849 or schedule D (I forgot which one) on the sellers 1040.
I have a situation where after a client sells or closes is business the client has a positive basis balance on his basis worksheet after all transactions taken into consideration.
If a client sells his business/interest, capital account is zero (transferred to buyer) but basis shows ending balance of $1,000 (for sake of numbers) for a 1065 partnership. How is this balance treated? Can I claim a loss? Same questions for 1120S.
Also, I noticed for the BUYER, when buying interest from a member the capital he/she is purchasing gets transferred from seller to buyer.
Example:
Seller capital account - 1000
Buyer purchases 50% for $1000
Buyers capital balance is now 500 but he paid $1,000 for it.
For the basis worksheet I increase the buyers basis by $1,000, since this is what he paid but I noticed Ultra Tax likes to include the 500 capital account that was purchased as an increase to the buyers basis & capital account as well.
So is the buyers basis $1,000 or $1500 ($1,000 paid + capital transferred)?
Thank you!