If you're liquidating the company, you can generally recognize a loss.
We haven't discussed partnerships and LLCs taxed as partnerships because the rules can be much more involved.
The truck has been depreciated so that is adjusted basis for tax purposes is now ,500. Madison distributes the truck to its sole shareholder.
Madison must recognize a ,000 gain (all ordinary income).
The problem is considerably diminished if the asset is easily valued. That way the corporation (or the shareholders in an S corporation) can get the tax benefit of the loss.
For example, an auto or truck (you can use a blue book), marketable securities, etc. Moreover, the sale of business assets at a loss generally produces ordinary loss.
Thus, the shareholder would report the ,500 dividend (the fair market value) on his personal return and pay tax a second time.
Cedar will deduct the net capital loss in the computation of current earnings and profits for 20X3. Terrapin Corporation incurs federal income taxes of 0,000 in 20X3. Oakland Corporation reported a net operating loss of 0,000 in 20X3 and elected to carry the loss forward to 20X4. Included in the taxable income computation was a dividends received deduction of ,000, a net capital loss carryover from 20X2 of ,000, and gain of ,000 from an installment sale that took place in 20X1. The corporation’s current earnings and profits for 20X3 would be: A. How is the distribution treated by the shareholder in 20X3? 0,000 dividend and 0,000 tax-free return of basis D.
The shareholder's basis in the property is the property distributed is the fair market value. Selling the asset to the other company may not be the answer. Simply transferring the property will generally be deemed to be a dividend (or distribution) from the company to the shareholders followed by a capital contribution to the new company. (That's when the S corporation was a C corporation when the asset was purchased and it appreciated in value.) That's another complex issue.