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Will the sale of S corp stock with negative basis result in…

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Will the sale of...

Will the sale of S corp stock with negative basis result in capital gain to the extent of the negative basis?

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Two owners of 2 S corps wish to exchange their shares in each company so that each will own 100% of each company. Basis in each company is negative due to both sustained losses and distributions.

Submitted: 8 months ago.Category: Tax
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Answered in 2 minutes by:
12/17/2017
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 8 months ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,861
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

Hi. My name's Lane ...

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice to clients on three continents since 1986.

If you’ll please bear with me for a minute I’ll type up my initial response, and then we can go from there if you have further questions on this.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 8 months ago

Yes, basis enters tax calculations when:

  • The company has losses;

  • The company makes distributions; or

  • The company changes owners.

...

The third common need for accurate basis calculations comes with an ownership change. The proceeds over stock basis will be the taxable gain when an S corporation shareholder disposes of the stock. If there are no stock basis records, the shareholder runs the risk that the entire proceeds are taxable.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 8 months ago

Yes, this is a taxable event, because ownership is changing.

...

Please let me know if you have ANY questions at all, before rating me.

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating, using the stars on your screen, and then clicking “submit" (you may have to scroll up to see them OR look to one side or the other if you’re on a device, such as a phone or tablet) – That’s the only way I’ll be credited for the work.

I hope you’ll rate me based on my accuracy and thoroughness (as opposed to any good news/bad news content). Thank you!

..

But again, if you need more on this, or if I've not understood your question correctly, please let me know.

Lane

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