How do i calculate recognized built-in gain for 1st year as an s corp?

[DonnaF]

TurboTax wants me to enter a number for the BIG tax.  We changed from c corp to s corp but did not change our accounting method.  It has been cash basis and still is.  How do I calculate the recognized built-in gain?

[MartinW]

Hi Donna,

I've included an example to illustrate how to calculate a built-in gain:

X Corp. was a C corporation for several years until it
made an S election. Its only asset at the beginning of
its first S corporation year was Blackacre. The value
of Blackacre was $100,000 but its basis was only
$2,000. Two years later, X Corp. sold Blackacre for
$160,000. Because there was a net built-in gain at
the time X’s S election went into effect, it is liable for
the tax under §1374. It will be subject to corporate
income tax on $98,000 of its gain. The remaining
$60,000 of its gain is not subject to corporate tax.
The entire $158,000 gain is taxed to the shareholders
(but it is reduced by the amount of tax that X Corp.
had to pay on the gain) (§1366(f)(2), 1374).

I hope this helps. Thank you for choosing TurboTax!

[debby1]

The C Corp used Cash basis for tax purposes - you never addressed the issue of A/R at time of conversion or asked if they had inventory or a business valuation at the time of conversion

[SweetieJean]

You are posting on a 2 year old thread.  If you have a question, please start a new one.