Paid in capital by a shareholder is not income. It is recorded on the balance sheet of the S-Corp as Paid in capital.
When the rental property is sold with a capital gain of $100k, the gain is reported as a capital gain on the S-Corp tax return. It is passed on to the shareholders through their respective Schedules K-1, each for their share of the gain.
The paid-in capital does not reduce the gain.
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