Get your taxes done using TurboTax

As is usually the case, pass-through entities can get complicated quickly regardless of the size of the entity.

Additionally, it compounds when there is a sale.  I will provide some comments:

• An S corporation does not pay tax at the entity level (this is true 98% of the time, but doubt your facts fall into that 2%).  The income / loss passes through to the shareholder(s) and the tax is paid at the shareholder level.
• A shareholder in an S corporation must track their tax basis in this investment.  This is done annually by updating the tax basis schedule for the applicable lines on the K-1.
• Your beginning tax basis was the FMV of tax basis (interest) of your aunt's in the year of inheritance.  Then you should have adjusted / updated this every year as noted above.
• Now that you have a disposition event, you need to provide TT with some additional information.
• Since your facts indicate the sale occurred at the entity level, don't get hung up on semantics during the input stage.  The goal is to arrive at the correct gain and tax.
• I'm not sure what additional questions come up if you choose "disposed but not by selling it" or "none of the above".  
• Ultimately you want to be able to provide TT with two additional pieces of information; the selling price and your cost basis (which is your tax basis).
• The selling price would be the liquidating distribution your received from the S corporation.
• When updating your tax basis for the final K-1 amounts (applicable lines), if the final K-1 reflects any distribution, do not adjust your tax basis by this figure.  Liquidating distributions from an S corporation should be reported on a form 1099-DIV; so not sure what occurred in your situation.
• There should not be any double tax if handled correctly.  The gain on the sale at the entity level being reported on your final K-1 will be taxed at the shareholder level, but this also increases your tax basis; so no double tax.
• This is somewhat complicated and you may want to get some professional help so you file a complete and accurate tax return and the gain on the S corporation is correct.