Final K1 - Conversion to Personal Use

[birddogtb]

We are in the process of selling a small business, a S-Corp. The buyer will only purchase select assets, excluding a business use auto that will be converted to personal use at the sale date.  The auto has zero tax basis, fully depreciated.  Is there a gain on sale when the auto is sold since this will be done after the business is dissolved?  Will assets retainer by shareholder be taxable on final K1?  Thank you.

[Mike9241]

in the year of the sale, you need to report the sale of assets sold on that year's return. in addition form. you'll also need to include form 8594 which the IRS requires.  both buyer and seller must include the form with their returns.  the IRS compares both company's form to make sure the same amount was used for each type of asset. in addition, you'll need to determine the FMV of the auto. the tax laws treat the distribution of the auto as a deemed sale at FMV

• If the corporation distributes appreciated or depreciated assets as part of the liquidation, the S corporation’s gain or loss from the deemed sale of assets is passed through to the shareholder. 10 The shareholder’s basis in her stock is increased to reflect the gain or loss.  The shareholder will take a basis in the distributed property equal to the property’s fair market value. 

finally, you take the cash out of the corp and report that as a sale. your basis (tax cost) is the basis immediately before the distribution

selling the assets and liquidating the corp presents complexities. you may want to consult with a tax pro