How would you close this Balance Sheet (B/S) asset on the Final Return for S-Corp? Cost: 60K – Depreciation 32K = Book Value 28K Auto Loan (Liability) – 22K Auto was sold to the shareholder (S/H) for 45K (FMV). How would you 1) zero-out this B/S item on S-Corp return, 2) where are proceeds flowing and 3) how would you show that S/H had assumed this liability (if needed)?

Bogie Boric
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Feb 1, 2011 by Bogie Boric
Category: Tax Planning

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Gina L. Gwozdz
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Advisor: Gina L. Gwozdz, Payroll
Feb 1, 2011  
(1) Assuming the shareholder paid cash and there is no depreciation recapture is necessary to record the sale I would credit the cost $60K, debit the accumulated depreciation $32K, debit auto loan $22, debit cash $23K (proceeds minus loan) and credit gain on sale of car $17K.

(2) Proceeds of $45K first go to pay off the loan of $22K and the remaining goes to cash. If the shareholder is not giving the corporation cash, but instead is taking the car and related loan as a distribution then (1) and (2) are slightly different [instead of cash of $23K it's a distribution of $23K].

(3) There is no more debt on the corporation's books so there's no assumed corporate liability. He now has a personal liability (if he assumed the loan).