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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29964
Experience:  Taxes, Immigration, Labor Relations
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, It's regarding back in 2010 a s-corp took a 179

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Customer: It's regarding back in 2010 a s-corp took a 179 deduction for truck for $11,500. The S corp is dissolving in 2016. what are the tax implications for just transferring to the shareholder. He is also 100% owner.
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Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

The distribution of the truck is reported as the sale at its fair market value.

Correspondingly - if the truck was fully depreciated - the basis would be zero and at amount will be attributed to the depreciation recapture and taxed as ordinary income.

In hands of the shareholder - that FMV would be the basis.

Customer: replied 1 year ago.
let' say the FMV is now 5500.00. How would the journal entry look like...the Debits and Credit.
If he sold it for 4000.00 before the business closed would he take a loss on the sale, and what would the journal entry be.
The books show the asset for 11,500, and accumulated depreciation for 11,500.00.
Expert:  Lev replied 1 year ago.

There is no loss because the truck is fully depreciated.
From tax prospective - when the asset is sold at $4000 the gain is $4000 and it is fully attributed to depreciation recapture.
So $4000 woudl be ordinary income.

Accounting entries example may be found here

Expert:  Lev replied 1 year ago.

Cash - debit 4000
Accumulated depreciation - debit 11500
Gain on asset disposal - credit 4000
Assets - credit 11500

Customer: replied 1 year ago.
if he just transferred the Asset to himself. What would the journal entry look like?
Expert:  Lev replied 1 year ago.

There will not be any difference because from tax prospective the distribution is treated as the sale and the FMV is used as the selling price.

So - we woudl need to determine the FMV for reporting purposes.

The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.

    Customer: replied 1 year ago.
    But there would be no cash involved if he just transferred the asset to himself the shareholder, so what should the journal entry look like?
    Expert:  Lev replied 1 year ago.

    I would use cash account so - that would be a clear sale transaction on books and put some memo

    after that credit cash account and debit capital account.
    But if you do not wan to use cash - you may debit "retained earning" or capital account depending how your books are set

    and right after that record distribution.

    The closing entry will be against the Shareholder Capital Account.

    Expert:  Lev replied 1 year ago.

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