@ylau110 this is treated as an actual sale and then a liquidating distribution; two separate components.
The liquidating distribution of the property to the shareholders is treated as if it was an actual sale and the gain reported at the S corporation level and reported on the K-1.
It will also be treated as a liquidating distribution and reported on form 1099-DIV (not the K-1).
Based on your additional information of "zero"basis, you would arrive at the following:
- Beginning stock basis of zero
- Gain on the sale of the building $75,000; hypothetical amount.
- Reported on the K-1 and then reported on your individual return
- You will also have unrecaptured Section 1250 due to depreciation taken. This will cap the gain on the building at 25%
- Your basis will increase by the $75,000 gain
- When reporting your final gain or loss on the S corporation liquidation, your "sales price" will be the FMV of property / building distributed; which we don't have the details on this figure. Your cost basis will be the $75,000. The FMV of the property will be reflected as a distribution on form 1099-DIV.
- So as you can see, this may not be a sum zero transaction
- You will pay actual tax on the gain which will be capped at 25%; max $18,750 based on the hypothetical figure above
- You may have tax on the liquidation of the S corporation stock; we don't have sufficient details to determine this.
- So as noted previously, there may be actual tax consequences and real tax $$ out of pocket without any cash; since this is a deemed sale.
- Have a tax professional run the numbers before you do anything.
*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.
