Yes. Followed by a distribution to the shareholder in the same amount.

Distribution?  Wouldn't trade in amount less the tax basis be the taxable gain?   How would the trade in

amount be a distribution? Can't figure out the journal entry?

Corp disposed of a vehicle for $XXX value. $XXX value went to the shareholder who used it to obtain a personal use asset.

Same result as if vehicle was distributed to shareholder first. Deemed sale at FMV by S Corp. Distribution to shareholder at FMV.

Or same result as if S Corp sold the vehicle for cash. Then distributed cash to shareholder who used it to buy a car for himself.

"Wouldn't trade in amount less the tax basis be the taxable gain? How would the trade in

amount be a distribution? Can't figure out the journal entry?"

An individual cannot trade in a vehicle they do not Own. You would remove the asset from the corporation, because it benefited this individual. Taking this asset, a vehicle, is no different than taking an asset which is Cash. That makes this either a Loan to be repaid, as if that is a Sold to the person. Or, it was a Distribution, because they got an asset of Value.

And now that the corporation doesn't own this vehicle, your individual taxpayer can do whatever they want with it. Now they own it.