Liquidating a S-Corp: liquidating depreciation on improvements

[MelO4]

I was a shareholder of a S-Corp.  The S-Corp closed.  All the shareholders left or were bought out by me.  

The S-Corp did major improvements (new roof, added a kitchen, parking lot paving, etc.) to the building they were using but did not own.  They took Special Depreciation on most of the improvements.  Everyone disagrees on how to handle the depreciation the S-Corp took.  The improvements were only on year 9 of a 15 year depreciation.  How do you liquidate depreciation on improvements?

1.  The Tax Accountant says just list it on the remaining shareholder's tax return (me) and continue the depreciation as it was.  It's a "pass through" transaction.

2.  An attorney says that the difference between Special Depreciation and MACRS must be reported as gain and all depreciation stops. 

3.  Another Tax consultant says that since the assets "were purchased" with remaining depreciation, they need to be listed as "purchased as New-to-Me" and must start depreciation over at FMV and a new depreciation life.  

I don't know.  My head hurts.

[Anonymous_]

@Rick19744 can certainly provide clarification here, but you first stated that the S corporation was closed and then stated that you bought out some of the shareholders.

The foregoing begs the question as to whether the S corporation is still operating (presumably with you as the sole shareholder) or whether the corporation was dissolved (and you are carrying on the business, whatever that might be, as a sole proprietor or otherwise individually).

[MelO4]

The other shareholder's shares were purchased in 2019.  The S-Corp closed 12-31-2020.  The S-Corp did not do any business after 12-31-2020.   I was the sole shareholder in the final year 2020.  

The S-Corp was dissolved.  The tax return, 1120-S, 2020 was filed.  The 966 was filed.  The state was notified.  I started my own Sole Proprietorship on 1-1-2021 doing something similar to what the S-Corp was doing but not the same under a new name.

Just don't know what to do with this accumulated depreciation on improvements?  Do I "pass it through" keep going with the depreciation, do I calculate a gain and stop depreciating it, or list it at FMV and a new depreciation life.  

[Mike9241]

I was a shareholder of a S-Corp.  The S-Corp closed.  All the shareholders left or were bought out by me.

this seems like a contradiction. if the S-Corp closed there are no more shareholders (state law would dictate what needs to be done to liquidate a corporation) . we can't tell if the buyouts were before or after "closing the S-Corp"  

it is further confusing since you could have bought out some or all of the other shareholders before or after liquidating - different tax consequences. 

another issue is the improvements made by the corp to property it did not own.  we can't see the lease agreement, but if the lease terminated the property would revert back to the owner.  then you no longer have property that can be depreciated. the un-depreciated cost would be written off as loss on abandoned property. 

this is a situation where competent tax help is required. there is just too much missing info. 

[Rick19744 · Accepted solution]

Your bullets 2 and 3 are correct.

Liquidating distributions are treated as deemed sale at FMV.  Gain is reported at the S corp level and you will have depreciation recapture.

liquidating distributions are reported on form 1099-DIV.

You will then determine your gain or loss on the sale of the S Corp stock.

You will then start depreciation over based on the FMV of the property distributed.

[MelO4]

Thank you for all your help Rick 19744!  

[Rick19744]

You are welcome.