S-Corp final return

[revetaxes]

Hello, we are new to the community and new to the industry.  Thanks in advance for any help from you folks and do not laugh at us if we ask dumb questions.

We have a friend whose s-corp was closed in 1/2021 and all the real estate assets were transferred to the family trust two years ago.  How should we handle the final return of the s-corp? We do not have the information of real estate basis.  Thanks.

[qbteachmt]

Did the S Corp hold the real estate?

Or, did the friend hold the real estate?

Because that is a significant difference.

[IRonMaN]

The real estate should be reported as a sale based on the fair market value at the time they were distributed.

[qbteachmt]

If the real estate was transferred out of the S corp into a Family trust two years ago, there is nothing to do regarding the real estate on the final S Corp return, because all of that should have been handled on the filing two years ago. But, it is unusual (and not recommended) to hold real estate in an S Corp. Perhaps this person who owned real estate, also owned an S Corp. But the real estate and the S Corp have nothing to do with each other, setting aside common ownership.

As usual, more details will be helpful.

[revetaxes]

I think real estate were under their name, not in the s-corp name.  Thank you for your response.

[revetaxes]

Thank you.  Should we report everything $0 on the final return then?

[sjrcpa]

Probably not. What did the S Corp have? Cash, Accounts Receivable, Debt, Fixed Assets, Income, Expenses?

[qbteachmt]

"Should we report everything $0 on the final return then?"

There would have been payroll wrap up, for Jan 2021. There would have been payments made in 2021 against 2020 year end payroll, such as FUTA and other closing payments or outstanding events. It matters if this was a cash basis or accrual basis entity. It matters what activities happened in 2021, and what happened to "close" whatever this entity did for business.

You never explained how the real estate matters to the S corp.

[revetaxes]

The rental income and expenses were still reported in the s-corp in year 2020.  Schedule L 2020 year end  balance shows 554K assets, 50K retained earnings, 504K shareholders' equity.  No schedule E in the 1040 in year 2020.  Thank you for spending time to answer our question.

[revetaxes]

Thank you, yes, those should be reported.  It is a cash method entity.

[qbteachmt]

It certainly does appear someone has to determine where and/or how things have gone sideways for Rental Income. The property had a deeded owner. The S Corp doesn't make Rental Income on property it doesn't own, unless it is subleasing from a landlord to a tenant. A person owning shares of an S Corp, and owning Property, does not have property in an S Corp. The S corp is its own entity.

Before wrapping up 2021, someone should review these prior few years, perhaps back to the point of the transfer to the trust. Because personal real property transferred to a trust has nothing to do with an S Corp, so that property isn't also available for the S corp to rent and make income from.

If that is what you see.

[revetaxes]

Thanks for everyone's input.  It looks like the assets should be distributed to shareholders on the final return in year 2121.  Then the assets should be depreciated on a new basis on 1040 schedule E in next year.

[abctax55]

In the year 2121...if man is still alive...

[qbteachmt]

"It looks like the assets should be distributed to shareholders on the final return in year 2121. Then the assets should be depreciated on a new basis on 1040 schedule E in next year."

You only used the word "assets" and did not clarify if you still are referring to the same real estate. If so, then no, that's not what you would be doing.

As you pointed out, real estate that was put into a family trust two years ago means it has nothing to do with the closing of any S corp now. And no, the family trust isn't filing a 1040.

I don't know how new you are to all of this, but you might want to get some mentoring until you get some experience on these more complex issues. Having a local resource to work with will really help, because no one on the internet can review paperwork or details with you.