COD on an "S" corp short sale

[michaelmars]

Entity is less than 6 years old, and has a mortgage of 500k, with a remaining building basis of 500k just to make this simple.

 

The bank plans on selling the building for $135-150k and forgive the balance of the debt. I am having trouble projecting the COD and the cap gain/loss to report.

I think either, that the debt forgiveness gets added to the 150k sales price. or he has a capital loss of 350k and cod income of 350k. if this is the case, the cod taxes are due now and the loss gets used up at 3,000 per year.

Also how does the fact that the S corp has been around less than 10 years, any built in gain tax issues? [i never had to deal with this]

[OldJack]

Unless the S-corp had been a C-corp prior there are no built-in-gains. 

 

To keep it simple, as you say, here are the entries on the books of the S-corp:

 

Credit Sale of building (repo= proceeds + COD) $500k

Debit Receivable from Sale $500k

To record sale

 

Credit Cost basis of Building $500k

Debit Mortgage of Building debt relieve $500k

To remove building and mortgage

 

Therefore, there is no gain or loss to pass onto the 1120S-K1

 

Gain or loss is for the shareholder's 1040 to determine based upon receiving nothing verses his basis in the shares of stock of the S-corp.

[OldJack]

Well there was an additional entry to remove/credit the sale receivable but for some reason the website is giving me a message that I don't have authority to edit my post.  You get the point.

[michaelmars]

thank you Jack, you made it simple.