Level 3

Can a S-Corp shareholder deduct his $226k stock basis even in using an asset sale?

Forum|Forum|3 years ago
February 26, 2023
2 replies
24 views

S-Corp Shareholder sells his insurance agency as an asset sale instead of a stock sale, but seller & buyer agree on a large Goodwill (L-T Capital Gain) allocation of purchase price. Shortly after the sale his insurance agency is dissolved. Can the shareholder take a $226k L-T capital loss on the $226k stock basis?

It is obvious that he could have used the stock basis if the transaction would have been a sale of stock.

I am assuming that he could still write off the stock basis in an asset sale.

Thoughts?

Lacerte Tax

This topic has been closed for replies.

rbynaker

Level 13

You lost me. Where did the cash go? Unless the S Corp was purchased/inherited from someone else or previously a C Corp, the outside basis would likely be the same as the inside equity. Double-entry bookkeeping is magical.

R

Running26Author

Level 3

The proceeds from the asset sale went into the business and then a shareholder distribution was made.

The gain from the sale of assets (primarily LTCG) and distribution was reflected on the final K-1 and was properly accounted for in arriving at the $226k ending stock basis. The K-1 LTCG pass through is $454K, more than enough to absorb the stock loss.

The shareholder had bought the business 25 years ago at $275k and had not eroded that much basis with limited S/H distributions.

Hope that helps.

R

Running26Author

Level 3

edit..................Shareholder had bought the stock of the prior owner personally 25 years ago so there outside basis.

qbteachmt

Level 15

"Can the shareholder take a $226k L-T capital loss on the $226k stock basis?"

Are you confusing write off, deduction (for purposes of net) and loss?

It isn't clear how this person lost their entire basis in this sale.

Don't yell at us; we're volunteers

R

Running26Author

Level 3

Of course, outside stock basis is used to determine if any ordinary business loss is deductible.

The gain on the asset sale (480k) was passed through to the shareholder on the K-1. I am talking about the remaining stock basis bought from the owner personally which has been adjusted each year by income & distributions, etc. Can the selling shareholder write off the remaining cost of his investment. Or is his remaining stock basis lost? That is the point of my question.

sjrcpa

Level 15

Whatever stock basis is left after accounting for the asset sale and distribution in the year of sale is deductible as long-term capital loss on the disposition of his stock in the S corp.

The more I know the more I don’t know.

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