Help! There is definitely something wrong with Turbo Tax Asset Entry Step-by-Step. There is nowhere to input Special Depreciation already taken on a transferred asset. I've definitely seen a place for it before and now it's gone. I have tried "Deleting" the asset and re-inputting it but it still won't appear. I have tried "Deleting" the item and closing TT but it still won't work.
When I did have the Special Depreciation input, then I would get an error on the Asset Entry Worksheet (red box). It's bad. Something changes when something else is selected but I just can't figure it out. Everyone is blaming me that I don't know how to work TT but it's not true.
Thank you for your reply. I wish I had 2 free hours to spend on the phone "trying" to explain this to TT support!
The problem is I'm transferring equipment from a S-Corp to a Sole Proprietor and TT doesn't understand that the depreciation has already started some 10 years ago. TT understands it in the Step-by-Step interview but does not transfer it correctly to Form 4562.
According to VictoriaD75 "a Sec 179 Deduction must be purchased and put to use between Jan 1st and Dec 31 of the year you are claiming".
I'm not trying to re-take Special Depreciation again, I'm just trying to show it on Form 4562, so the math is correct.
On the Assest Entry Worksheet, in "Forms View" Line 9A is: Economic Stimulus Qualified Property: Yes/No. Since the property is not qualified, when you mark "NO" TT looks at it and says, "no Special Depreciation for you--error". If you pick yes, it will allow you to keep the Special Depreciation but will not calculate a depreciation for this year, $0. There's still time to depreciate it.
I think you need to add it as a new asset on your Schedule C and start the depreciation over starting with the current value (after depreciation) from the S Corp. It's new to the sole proprietor. You don't need to enter any prior depreciation. Just start with the lower value.
That's interesting, VolvoGirl. I did not think about that.
I just thought I should keep depreciating it the same way for the remaining 3 or 4 years that was left from the S-Corp. Interesting.
Thanks for your input. Much appreciated.
I will (again) page @Rick19744 as I am sure he can add some insight.
In terms of state requirements, articles of dissolution need to be filed (among other things) and, for federal income tax purposes, a final 1120-S must be filed.
The distribution of corporate assets will likely have federal income tax consequences and you will need to enter the correct valuation for those assets on your individual income tax return.
Unfortunately, you do not have a simple transaction. A few comments:
- Your facts don't indicate whether you were the sole S corporation shareholder, but I am assuming you were.
- Based on the limited facts, you are liquidating the S corporation (whether you have or are in the process of doing so).
- This process unfortunately can have immediate tax consequences. So depending on the $$ involved, you may want to get some professional input.
- When you liquidate an S corporation, and there are property distributions, there is a deemed sale of the property at FMV. This means that you report actual gain at the S corporation level and this gain is then reported (and taxed) at the shareholder level. This includes any depreciation recapture which may be taxed as ordinary income depending on the property (real estate will be capped at 25%). No loss is allowed. This computation needs to be done on each asset; no netting.
- You then need to determine your overall gain or loss on the S corporation liquidation. This could be a second level of gain, but clearly not sufficient facts to provide any input.
- The liquidating distributions should be reported on form 1099-DIV and NOT on the final K-1.
- Since there is a deemed sale, your beginning basis for depreciation is as if you had just purchased the asset(s) at the liquidating FMV. The date of "purchase" is the date of the liquidating distribution.
- Make sure you contact your Secretary of State as there may be formalities to close the corporation.
- TT is a software that is generated for the masses and does not always have the ability to provide guidance for more technical transactions. However, in this case, it is not a TT issue but rather just not understanding the complexity of the transaction and how the new assets are then input as a result of a liquidating distribution.
Thank you so much for writing all that out. It helps a great deal.
I'm trying now to digest it all. Yes, we have a professional tax preparer helping but I don't know. Seems even tax professional differ on the correct answer. I need the "hands up in the air" emoji.
It seems our professional wants to hand the S-Corp off to us, the Sole Proprietor, because that's what the S-Corp became in the end one sole person (all the other shareholders left) so we can finish the depreciation and sell/dispose of the remaining inventory.
But the correct way seems, the S-Corp stopped on a point of time, everything at that point needs to be valued, gains need to recognized or assets abandoned, no losses can be taken, and then re-acquired by the Sole Proprietor.
Yeah, just trying to figure it out. I don't know how you do this everyday!
There appears to be mixed facts:
- An S corporation certainly can continue to operate with just one shareholder
- If that is the case, then there is no liquidation.
- If you do not want to continue in the S corporation entity structure, and operate as a sole proprietor, then you have the liquidation as discussed above.
- You are getting mixed signals because the facts do not appear to be consistent
- You need to determine what entity structure bests suits you and the business.