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40PeterB
Returning Member

S-corp Liquidation w/ Section1231 gain: where to enter my cost basis In TT H&B?

I inherited shares in a real estate rental corp. indirectly from my mother 10 years ago, and have only recently found my cost basis for the Oct. '18 property sale and disbursement of my mid six-figure share.

 

The 1120S K-1 does not reflect my basis, and shows entries in the following boxes: #2 - Net real estate  income for year; #4 - Interest income; #9 - Net section 1231 gain; #16 - Items affecting shareholder basis, code D - a figure about 10% greater than the large Sect. 1231 gain, with no explanation; #17 - Other Info., code V* (Section 199A income - same figure as box #2).

 

It seems the K-1 must be amended in some way to reflect my basis. Is this straight-forward, or should I consult a tax attorney to complete this '18 extension. My tax situation otherwise is uncomplicated.

 

Thanks for any help, Pete

 

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3 Replies

S-corp Liquidation w/ Section1231 gain: where to enter my cost basis In TT H&B?

Some thoughts and comments:

  1. Your facts are not clear.  You inherited a cost basis in the S corp stock when your mother passed away.  Each subsequent year, this cost basis should have been updated annually for the applicable lines on your K-1.  So if you have not done this, you have a significant amount of work to do.
  2. As to the immediate K-1, you just need to enter the information into TT using the interview process.  This will guide you through the applicable lines.
  3. The facts are not clear on whether just the property sold or if you also received a final K-1.
  4. If the later, you need to update the cost basis for the final K-1.  Until you have an updated basis figure (prior years and current year updated) you will not be able to determine your overall gain or loss.  You will need to input this information as well so it can be reflected on form 8949 and Schedule D.
  5. I recommend you consult with a tax professional to make sure you are reporting the correct sales price along with any liquidating distribution.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
40PeterB
Returning Member

S-corp Liquidation w/ Section1231 gain: where to enter my cost basis In TT H&B?

Thanks Rick. The inheritance was a complex situation after her death 20 years ago, with the shares ultimately divided between me and my two surviving siblings just ten years ago. And yes, I will consult a tax pro!

 

The K-1 above was a final one. Prior year's K-1's were updated by the corp. accountant in line 16 "Factors affecting holder's basis", code D, by the amount of the yearly distribution, but neither the accountant nor I was aware of the original cost basis for my mother's estate 20 years ago, which I found recently was calculated by the 10X yearly earnings formula, I can't see how that figure would be relevant before the property sale, though.

Pete

S-corp Liquidation w/ Section1231 gain: where to enter my cost basis In TT H&B?

Basis in an S corp is relevant in determining; ability to take losses and whether tax distributions are taxable.

 

So in your case, if the S corp did not generate any losses, then you should be fine.  As noted in the original response, the tax rules look to basis before the passive activity loss limitations.  Additionally, as long as any distributions did not exceed any current year income, then you should be ok here also.

 

So now, the basis becomes important in determining your overall gain or loss upon the disposition of your S corp stock.

*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
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