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Tax Law (Questions About Taxes)/How do I determine the total assets to write in on my 1120 s form


QUESTION: My company doesn't have any income, there is one property owned - value is 72,000 and loan balance is 48,750 the income from the property was short of actually covering all the expenses incurred by operating it so the income was actually (1133) on form 8825 so would I take the valu of the property minus the loan balance owed, or would I also subtract any other costs from that value? I do have things like tire account balance, gas card account balance, and other accounts I did have for my company


ANSWER: The property is an asset the debt is a liability, you list them separately.

The asset (house) has a basis, that is the number that goes on the tax return.

What is the basis of the house? That depends. If the corporation bought it this year then the basis would be the purchase price. But if you capitalized it (transferred it to the corporation after you owned it for a while) then the corporation would take it on at your adjusted basis, which would be the original purchase price, less depreciation, plus any capital improvements, less the depreciation on those capital improvements. It gets complicated to explain when we have to describe all the variable.

Here is where I think you may have a problem. I'm guessing that the S-corp does not actually have constructive ownership of the property. That you haven't actually transferred it properly and therefore the corporation wouldn't be eligible to list it as an asset.

Without this all of the accounting that you do will only be disadvantageous because if the IRS at some time later disallows your transfer, they disallow all the deductions that were taken and would not allow you to retroactively attribute those deductions properly. You'll have lost the tax savings and will be paying penalties and interest, simply because the Is weren't dotted.

Why do I think you have a problem? Because you said there was a loan on it. If that loan existed before the property was put into the corporation, the lender normally doesn't allow a transfer of title (reconveyance) without getting paid off.

If I am wrong on this then I hope that hte first part of the explanation helps and I wish you well. But I hate to see honest diligent people get blindsided.

Richard Fritzler
The Business Designers .com

800 658-5105

---------- FOLLOW-UP ----------

QUESTION: Not actually a question but answer to your question, the house ( a duplex ) was bought by the s corp, loan is in the name of the s - corp, my question was more specifically about what the total assets value I would list on my tax return. The value of the duplex is 72 - 78k, the loan is 48,750 so the equity is about 29K, but the costs exceeded gross rents collected by 1133, but the tax return said to put it on a schedule K which would transfer out to the shareholders, so how would the income from the property be used to cover company debts or expenses before going out to shareholders?
I actually listed the equity of the property as total assets - FYI the property was purchased in March 2012. I didn't claim any of my companies expenses on the tax return. I have my sole office out of my home, all shareholders are immediate family members, but I wasn't sure where to record those expenses and the share of utilities, also I have to refy the loan this year because it was a 1 yr term so I will claim all the loan costs on the next tax return because they will be paid in full this year anyway. Thanks for your help - it was very simple when there was just so income and no assets, and I found out it is quite different than doing your own personal tax return even if long form.

Staying with the property value:

The value for the tax return would be what the S-corp paid for it (the fair market value at the time of purchase.) The depreciation is accounted each year. Your property may appraise differently, go up or down in value from year to year, that does not change what is on the tax forms. Only when you convert to cash (sell) the property would you realize a gain or loss in relation to the amount that the asset was orginally put on the books.

What we are discussing doen't have anything to do with your annual revenues, profits, losses or expenses. The value for the IRS is solely so they can track gains or losses at sale.

You do not want to record the value of the property as just the net equity.

If for example you sold the duplex this year, with your accounting, a "Value" of $29,000 and a sale price of $78,000 you'd owe taxes on $49,000 of gain. That tax would be more than you made on the sale.

If you hold it and depreciate it, you would depreciating $29,000 over 27.5 years, not $74,000. Far less depreciation.

I pointed out that the Liabilities #the loan# is listed separately on the tax return. It is also accounted for separately. Yuo'll be making payments on that loan which will reduce the debt, it won't increase the value of the property.  

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Richard Fritzler


Specializing in Business and Corporate taxation. Comparing the advantages and requirements of different business entities, such as Sub-S Corporations, LLC`s, Partnerships (Both Limited and General), Doing Business as a Sole Proprietor, or Using a C-Corporation. Issues regarding K-1 distributions, 1040, schedule C, 1120, 1120s. Are you considering domiciling a Corporation in a low tax state? I can review the benefits and misinformation that exists.


I have been in the business of assisting business owners in reducing their taxes and liability since 1986.

National Small Business Owners Association.
Contributing author to "The Corporate Standard Newsletter".

Contributing author to "The Corporate Standard Newsletter".

I have been in the business of assisting business owners in reducing their taxes and liability since 1986.

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