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Convert sole proprietor to S-Corp do the assets get disposed?

Forum|Forum|5 years ago
February 24, 2021
11 replies
66 views

Do I need to dispose the assets from the sole proprietorship, then enter each asset with the placed in service date being the start date of the S-Corp?

ProSeries Basic

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Best answer by qbteachmt

Typically, the assets are part of "contributions" to start the S Corp. Or, the asset is being sold to the S corp. And you didn't mention which type of property this is, or if there are other shareholders.

https://www.irs.gov/forms-pubs/about-publication-551

Have you searched web resources? Such as: https://www.thebalancesmb.com/donating-property-to-an-s-corporation-3193484

qbteachmtAnswer

Level 15

Typically, the assets are part of "contributions" to start the S Corp. Or, the asset is being sold to the S corp. And you didn't mention which type of property this is, or if there are other shareholders.

https://www.irs.gov/forms-pubs/about-publication-551

Have you searched web resources? Such as: https://www.thebalancesmb.com/donating-property-to-an-s-corporation-3193484

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T

taxguyakAuthor

Level 3

Reading your web link to thebalancesmb.com, in transferring a fully depreciated furniture item from the schedule C to the S-Corp, I would dispose of it listing the day before the S-Corp began. Then I would enter the asset into the S-Corp with a value of 0, with the date in service being the date the S-Corp began. For each asset disposed, the price would be the lower of FMV or Cost - total depreciation. Am I right?

The S-Corp has 3 shareholders.

qbteachmt

Level 15

"The S-Corp has 3 shareholders."

You're going to need to weigh these options, and understand that if you do it one way, the individuals might have taxable gain and they might not appreciate this scenario. It also depends on the asset type, because we don't want to have a fight over who gave more valuable items to the business startup. And you always want to look for favorable treatment for the individuals and for the S Corp. That is why, for my example of selling an asset to the corporation, one shareholder might own the Well Drilling rig that is being sold into the S Corp, while someone else owns the Grader.

Just as examples.

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sjrcpa

Level 15

Look at IRC 351.

Assets get contributed to the S Corp.

No sale.

The more I know the more I don’t know.

qbteachmt

Level 15

"Assets get contributed to the S Corp.

No sale."

Doesn't it matter where they are already being held, such as a different S Corp or a partnership that is merging with another to form that S Corp?

Don't yell at us; we're volunteers

sjrcpa

Level 15

If they are coming out of a corp, yes. Then they come out of that corp to the individual owner as a deemed sale at FMV. Then the owner contributes them to the new corp.

Here, OP said it was from a sole proprietor.

The more I know the more I don’t know.

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