Single owner S-Corp Incorrect Cash withdraw caused negative Stock Basis

[andy5988]

I am a single owner of an S-Corp.  In 2022 I withdrew $300K cash from the company to help fund the purchase of an investment property. The investment property was purchased using this $300K fund and my own personal fund. The property's title is under a Trust that I own.

I incorrectly recorded the withdrawal as "Owner Draw" rather than "Asset Purchase". I didn't even report it on the 2022 tax return as Distribution. On top of all this, I just realized that if I report this as a Distribution it will put my stock basis at about negative $200K.   I should also mention that I HAVE given myself an ample enough salary from the S-corp.

So, now I am thinking of amending the 2022 return to correct this situation by recording the withdrawal as an "asset purchase". The company will own a percentage of the property through the Trust agreement.  My question is, is this an acceptable way to correct this situation? Thanks in advance for any input.

[PatriciaV]

If the property is titled to a trust in your name, then the funds you received from the S-Corp were a distribution in excess of basis. Yes, you will need to amend the prior year return to report the distribution. And since this was in excess of your basis in the corporation, you will also need to amend your personal return to report a capital gain for the amount over your basis. 

The only situation where this transaction is the purchase of an asset is if the S-Corp is on the title of the property with an ownership percentage relative to the cash you withdrew. For example, if the property cost $500K, then the S-Corp would own 60% of the property ($300K/$500K). In this case, you would amend the prior year return only if Form 1120S included a balance sheet. Otherwise, the purchase wouldn't affect taxable income or the member's basis.