Thanks Champ…I need to explain the situation better. About 75 years ago 5 brothers including my grandfather established a partnership and bought land because they were timber harvesters. They did this until they retired, then established a C Corp in the 60s that they owned and family continued the business harvesting timber and added renting land for a hunting lease. The C corp shares were owned by my parents and were turned into S Corp shares in 2007 that then were inherited by me. No share value has ever been calculated by the company. C Corp profits were distributed as dividends and we put them on our individual tax returns. On becoming an S Corp the profits were distributed as Net LTCG on line 8a of the K1s we got every year…I've owned the shares since the same year it became an S Corp. Turbotax never told me to fill out the 7203 so it never got filled out although I do still have all of the K1s. The company will sell the land, close the company, and distribute the proceeds this year. Previous dividends and then LTCG of the S Corp were a couple thousand a year but the sale of the land will result in about $250K of Net LTCG this year.
It is my understanding that the cost basis of my shares (once I calculate it via the formula I found on the IRS page) should reduce the amount of net LTCG and thus tax liability. Is this not correct? If it is…I'm just wondering where to put the cost basis into TurboTax so that it will reduce the actual LTCG that gets taxed. If it isn't correct…then why would shareholders even. care about a cost basis at all?
According to the company management…the proceeds will be distributed on the K1 line 8a as Net LTCG as usual and the shares we hold will not be sold to anyone, they'll just become worthless as the company won't exist anymore.
Given all of that…
1. I can fill out the 7203 for 2024…but since it never got filled out before how does one go about figuring out what the actual cost basis for 2024 should be from all the annual updates? Do we need to file 17 years of revised tax returns to add all of the 7203s?
2. I can figure out with a spreadsheet. what the 2024 basis should be since I've got all of the K1s…that. part is simple arithmetic…but if it reduces the effective LTCG how does that get incorporated in TurboTax. If I just put in the net LTCG on the K1 in the app it passes the total value through to Schedule D and there's no place for cost basis. The only thing I can figure out to do is (a) ignore the cost basis altogether and pay taxes on the entire distributed sales proceeds or (b) reduce the net LTCG on the printed K1 by the cost basis and then enter that into the K1 in the app which would then only add the reduced value to the Schedule D and the tax calculations.
Or…am I completely misunderstanding this…that's certainly possible.
