I have a new client who is a medical doctor. Unfortunately the client was working with another CPA who did not do a whole lot of planning or analysis and just willy nilly filed an S Corp election. This will definitely benefit her next year, however, the practice she is buying is going to be 100% financed. From the research I've done, section 1366 and the regulations for 1366 show that merely guaranteeing the debt of the S-Corp does not give the shareholder basis to deduct losses against and that distributions to do not reduce debt basis.
If we 179/bonus the assets that are eligible from the asset purchase and take her income below her distributions, she'll have distributions in excess. Since 2021 will be the first year, these distributions will be considered short term capital gains, correct? I believe section 1368(b) says that distributions in excess will result as the sale of property happened and the term is determined for the holding period based on how long they've been an S-Corp. If so, does it only make sense to 179 to that it does not reduce basis below -0- to avoid picking up the excess as ordinary income and extending the depreciation to more profitable years?
Thank you!