Hello Marleen,
Unrealized built in gain in generic terms is the difference between an asset's fair market value and it's tax basis at the time of a conversion or sale(generally your cost for the asset).
For example if you purchased a business and inherited the tax basis of the assets...let's say a printer for example. If the printer's fair market value at the time of the sale was $100 but your inherited tax basis is $75, you have an unrealized gain of $25. Meaning you could profit $25 from the sale of that printer if sold. But since you have not sold it yet, the gain is "unrealized". The same could happen in reverse, where the printer is valued at $75 but its tax basis is $100. You would then have an unrealized built in loss or a deduction you could take if you sold it.
When a C Corporation converts its tax status to a S Corp or acquires assets from the C-Corporation in a tax-free transaction, it may be subject to a corporate built in gains tax. A tax may also be imposed upon the shareholders = double taxation.
I would suggest that you consult with am accountant who is specifically trained in the area of small business tax so that you can get ask questions for your specific situation to account for your conversion properly and ensure that you are reporting your capital gains and losses correctly for this transaction.
We have a service called CPASelect that you can decide to use if you believe you need a professional to prepare or review your return for this first year of your conversion: https://turbotaxcpaselect.intuit.com/
We are here to help you all the way. Thank you for choosing TurboTax.
