S Corp termination --- comversion of vehicle to personal use

[Joel]

Taxpayers have a small house building S corp. This year they finally sold the last house and are ready to terminate the S corp. Other that the usual final return and Termination notice to the IRS the S Corp has only one asset, a 2005 truck. The original purchase price was $32,000 and accumulated depreciation is now about $20,000. The truck is to be converted to personal use. In reporting the conversion on the 1120S the resulting $12,000 basis is reported as a loss that is transfered to the shareholders k-1. Since the shareholders (husband and wife) are receiving the $12,000 loss on their k-1 and receiving an asset of value what should be reported on the 1120S and/or the 1040?

[ed_accountant]

No loss unless the truck is sold. What is the FMV of the truck?

If the truck is distributed to the owners, it should be treated as a sale to the owners. Gain and loss would caculated based on FMV versus net book value..

Often, the FMV is close to net book value so there is really no gain or loss...

[OldJack]

The original purchase price was $32,000 and accumulated depreciation is now about $20,000. The truck is to be converted to personal use. In reporting the conversion on the 1120S the resulting $12,000 basis is reported as a loss that is transfered to the shareholders k-1. Since the shareholders (husband and wife) are receiving the $12,000 loss on their k-1 and receiving an asset of value what should be reported on the 1120S and/or the 1040?

The transfer/distribution of the vehicle is treated as a *sale* to the shareholder at fair-market-value. Therefore, there is no loss unless the FMV is less than $12,000 (or book value). For a 2005 truck it would appear that the value is probably much greater than book value and therefore the S-corp must report a taxable gain on form 4797. Since the S-corp passes the gain to the shareholder the shareholder must pay the tax and the FMV as a result becomes the tax basis in the hands of the shareholder for future disposal.