K-1 and Form 4797

[Lavash1]

Last year we sold a farm that had been owned by an S-Corp. I have all the stock blocks needed to establish the stock basis when the books were closed on 12/31/2021.

I understand that Form 4797 will be used to report this transaction. Do I use the amount shown on Line 16 (code D) items affecting shareholder’s basis on the K-1 from the corporation as the sales price or some other amount (such as my share of the actual sale price of the farm)?

As always, thanks for any and all help.

[Anonymous_]

You might want to seek guidance from a tax professional for this scenario.

Regardless, it is somewhat unclear whether the S corporation, itself, sold the property or whether the property was distributed to you, at some point, and you sold the property (and then, thereafter apparently, the corporation was dissolved).

I will page @Rick19744 for further input as to the basis, valuation, et al.

[Lavash1]

Thanks for getting back. The S-Corp sold the property, and I received a cash distribution.

[Anonymous_]

Then you will likely have figures on Lines 8c and 9 of your K-1 (possibly other lines) that relate to this transaction.

@Rick19744 will almost certainly have more input.

[Lavash1]

Yes there is an amount for Line 9 For Net Section 1231 Gain.

[Mike9241]

in theory, your tax basis is what you paid originally plus all subsequent items reported on your k-1 of income less deductions less distributions except for the final one.  then in theory the liquidating distribution the selling price should equal your tax basis.

this will not work if you acquired your share by inheritance or gift.  then it's the tax basis for the shares you were gifted or inherited +/- the same items as above but the liquidating distribution could result in a gain or loss.

the IRS has actually come out with form 7203 (for 2021) for use in computing tax basis but it will also work if you prepare the form for each year you had an ownership interest.

https://www.irs.gov/pub/irs-pdf/f7203.pdf 

it is also possible to have a different gain or loss for alternative minimum tax purposes.

[Anonymous_]

---

@Lavash1 wrote:

Yes there is an amount for Line 9 For Net Section 1231 Gain.

---

That will wind up on Form 4797. Nothing on Line 8c?

[Lavash1]

Nothing on line 8c. The only other entry is on Line 2 Net rental real estate. Which for the year was a loss.

[Anonymous_]

Out of curiosity, was this a farm that was owned and operated by the S corporation or did the S corporation own the farm and rent it to a third party?

[Lavash1]

I have used form 7203 in build the stock blocks to establish the beginning and ending stock basis for each year the corporation operated. I am comfortable the stock basis I show at the end of 2021 (the year the corporation ended) is correct.

[Lavash1]

Owned and rented. That is the reason for the entry on line 2.

[Anonymous_]

---

@Lavash1 wrote:

Owned and rented. That is the reason for the entry on line 2.

---

Understood, but were there buildings on the property and was the property raw land? In other words, no property subject to depreciation?

[Lavash1]

Raw land, no depreciation.

[Rick19744]

Based on the original question and follow-up responses:

• You indicate that your final K-1 has an amount on line 16 code D.
  • Does this represent your liquidating distribution?
  • Technically the liquidating distribution should be reported on form 1099-DIV and NOT the K-1
• Your facts also indicate that you only received cash as a liquidating distribution.
  • As such, you need to input the items reflected on your K-1 in TT just as any other year
  • You then need to update your tax basis (form 7203)
  • Do not adjust your tax basis for the liquidating distribution
• You will have two levels of tax
  • The first is associated with the sale of the land reported on the K-1.  TT will handle this based on your input.
  • The second is the difference between your stock basis and your liquidating distribution
  • This second level of tax will be reported on form 8949 and then Schedule D
  • TT will ask questions related to the final K-1.  It is here that you will input your stock basis (not adjusted for the liquidating distribution), and then the selling price will be the liquidating distribution amount.

[Lavash1]

Thanks to everybody for your help. I have decided my best approach is to seek professional help. While Rick19744 tried to explain the proper approach to solving the problem, I am afraid it is above my knowledge base.

The amount on line 16, code D, is the liquidating distribution plus a minimal additional amount, less than ¼ of 1% of the total.