Sub S adjusting basis in multiple assets due to insolvency

[annmci]

I loaned some $ to someone whose return I am preparing (a friend so not being paid).

They are never going to be able to pay me back and they are insolvent but they do have enough basis between 2 or 3 assets for basis to be reversed to $0.  

They are being depreciated as last quarter straight line.  I consider the cancelation to have occurred the end of the 2nd quarter of 25.

I'm not seeing how this can be done in QB.  I suppose worst case I can consider it to be the end of the year and just delete the asset and reinput in the 26 with $0 basis.

Any help would be greatly appreciated.

[Mike9241]

was the money lent to the shareholders who lent to the S-Corp, or directly to the S-Corp? 

[annmci]

Directly to the Sub S.

[Mike9241]

from an accounting standpoint, the debt would be debited, and the basis of the assets would be credited. 

[annmci]

Thanks for responding.  I get the accounting of it.  I am asking the TT of it.

I guess I can override the current year depreciation and change the basis to equal current and prior year depreciation to have $0 ending depreciable basis?  I try to avoid overriding whenever possible.

I am hoping not to have to paper file.

[annmci]

Mike9241, thanks for responding and I apologize.  I just noticed today I put QB when I meant TT.

Do you know how it should be handled in TT?  TYIA.

[RobertB4444]

Please clarify this for me - you have entered the amount of the loan into the S-corp and zeroed out all of the assets against the loan balance.  The S-corp still owes you money and you're not sure how to handle that in TurboTax.  Is that correct?

If that is the case then the S-corp should just be shut down showing that it is the final return and the balance sheet should show the outstanding debt.  It should close as insolvent.

On your personal tax return you should enter the loss of the investment as though it were a sale of stock in the S-corp.  The basis should be the remaining amount that you are owed by the S-corp, the sale date should be the final date that the S-corp was in operation and the sale price should be zero.  

[annmci]

Thanks for responding. 

Not at all.  There are still several assets that have basis.  

As you would expect, after zeroing out asset(s) there was less than the total remaining balance of the asset with the least remaining balance of debt remaining.  I don't see any way to input that without it looking like a sale.  I ended up zeroing out that asset then entering the remaining balance like a new asset with the remaining balance.  Do you know another way to handle this?

As for how I treat it on my personal return, this was a personal loan so I don't see any way I can take anything.  Do you have a cite for me being able to do so?

[RobertB4444]

I'm sorry.  I didn't understand that this was a personal loan.

A personal loan isn't a taxable event.  That is between you and the person who you made the loan to.  It shouldn't be entered on the S-Corporation at all.  

If you have invested money into an S-Corporation through a business loan or contribution of capital then that is an event that needs to be documented on the return.  If this is a personal loan and you are forgiving it based on someone giving you the remaining assets of their corporation then that is not a reportable event.

[annmci]

Thanks for responding.

Again, I loaned $ to the corporation, not a person.  I received absolutely nothing and never will.  I did not do my due diligence before making the loan.

[RobertB4444]

You can make a personal loan to a corporation.  It should be structured and set up in writing and allow for repayment.  Maybe allow for an exchange of ownership in exchange for the loan that could be written off on your personal taxes as a loss.

Unfortunately, as a personal loan with no recourse this doesn't entitle you to a write off on your personal taxes.  On the upside, it doesn't need to be entered on the tax return at all so you don't have to worry about that anymore.

[annmci]

I appreciate your responses.

However, none have addressed my question.

In TT (in the OP I accidentally put QB)How do I handle an asset that still has some basis left when I offset it with the last of the forgiven debt?  I ended up just inputting the "disposal" date which stopped the depreciation and 2nd quarter with no other tax effect.  Then started a "new" asset with the basis being the remaining basis.

Do you know of another way to handle this?

[RobertB4444]

You're going to enter the asset with a disposal date of the last day of the business.  The business will "sell" the asset with a sale price of zero dollars.  This results in a loss on the sale of whatever the value of the asset was and the loss will pass through on the K-1s to the stockholders.

Alternatively, the asset can be sold for its disposal value (if it is scrapped, for instance) or sold for the exact amount of its value if the owners are just going to take it home so that there is no loss.

[annmci]

Thanks again but still not the question.

The business still exists.

What do you think of my solutions for the asset that has more remaining basis than the debt forgiveness?  I put the date of forgiveness as the disposal date (no tax effect, just removes it from the depreciation schedule.  I set up the remaining basis like a new asset depreciated sl for the remaining time.

[RobertB4444]

That will work fine.  As I said it is not necessary but it will be a fine way to show that you used up part of the assets on the debt.