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S corporation tax for depreciation method from C schedule

transfer to S corporation, how...
S corporation tax for depreciation method from C schedule transfer to S corporation, how to work on this type depreciation on the S corp?
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6/1/2017
Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
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Hi, my name is Mark. I will be happy to help you with your questions. Do you know the adjusted basis of the assets that are being transferred to the S-Corporation?

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Customer reply replied 6 months ago
Some property has been depreciated. such as 179 deduction. how to do that. Do I need to enter to the S corp tax return as record or just ignore it
Customer reply replied 6 months ago
some items has been depreciated a few years. how to report this into the s corp depreciation?

The adjusted basis would carryover to the S-Corporation. The assets that were fully depreciated would have a zero basis. The other assets would have an adjusted basis equal to what they were on the schedule C.

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Customer reply replied 6 months ago
has to use the same depreciation method? It is acquisition date is the property original date and initial cost is same?
Customer reply replied 6 months ago
or take its adjusted basis (remaining balance ) and its acquisition date is the property transfer date? I want to clear out this confusion. Thanks

The acquisition date is the date that the assets are contributed to the S-Corporation. The cost of the assets is their adjusted basis. Depreciation would start again.

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Customer reply replied 6 months ago
Depreciation method can be different from C schedule? It is life can be either remaining life or re-evaluate to life? For the 179 deduction items, zero adjust basis, still need to enter to the s corp? thanks

Depreciation method would be the same as they were in the Schedule C. You would need to re-establish the life. For the 179 expense items you would transfer them at a zero basis. For the items with an adjusted basis of less than $600 it does not make a lot of sense to depreciate over 5 to 7 years. For S-Corporation I would depreciate assets with a cost greater than $600.

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Customer reply replied 6 months ago
All of the transferred properties also need to be closed? for tax return, it treated be sold or transferred? Since it is converted to S corp, therefore, no c schedule on this year. however, the depreciation is need to be closed? Is it right? if not, how to work on the c schedule's depreciation? Thanks

For tax purposes that assets are transferred from the Schedule C to you personally. Then the assets are transferred to the S-Corporation. If you had the S-Corporation the entire year you are correct there would not be a schedule C. You would not need to do anything with the depreciation in schedule C other than carrying over the basis of the property transferred.

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Customer reply replied 6 months ago
Thanks. Very professional. one thing for sure, if the item has been 179 deduction. However, the item still is used by the S corp, therefore, it needs to show on the depreciation list. Is it correct? even it is zero basis.

Yes, you would need to include the zero basis items as well. It was my pleasure. If you would take a moment to rate my response I would greatly appreciate it. There should be stars located above the question. If you have any other questions or need clarification I would be happy to help.

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Customer reply replied 6 months ago
I will do it. Per section 1223 (2)Transferred property, the holding period is the transferor's holding period. However, the properties transferred to S corporation, and its acquisition date is the transferred date that sounds like the holding period will be changed. Confused on this point. Would you please clear out this confusion. Thanks

The corporation's basis in the transferred property is the same as the transferor's basis, increased by any gain the transferor recognized on account of boot. The corporation's holding period includes the transferor's holding period, regardless of whether the transferred property was a capital asset or section 1231 property in the transferor's hands

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The way that I am interpreting this is that the assets would keep the same characteristics as the schedule C. So if an asset is fully depreciated and you sell it in the S-Corporation for $5,000 you would still need to recapture the depreciation.

Mark Taylor
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Customer reply replied 6 months ago
Conclusion: For S corporation tax return purpose, the S corp depreciation sheet, its acquisition date is the transferred day; its cost is the adjust basis which is the remaining balance. Its life should be re-established either remaining life or extended life. All fully depreciation items still need to enter its depreciation schedule. Correct? Just want to make sure. Thanks
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