S corporation contributed assets bonus depreciation

Forum|Forum|3 years ago
September 14, 2022
2 replies
23 views

Hi,

A client of mine formed an s-corp and purchased a business's assets last year for $800,000. $600,000 for intagible property and $200,000 in furnature and equipment. He took a loan out for $400,000 and paid the other $400,000 directly from his personal account. If we take the 200K as bonus depreciation, the company will generate a 200K net loss which he'd like to take on his 1040 against other income. I have 2 concerns with this:

1. If we say that he contributed the 200K in furniture and equipment to the s corp, can he take 200K in bonus depreciation? I'm reading that used property qualifies but the property cannot have been used by the taxpayer or a predecessor at any time prior to such acquisition. Being that the predecessor used the propery in a prior business, I'm not sure if this will work?

2. Would it be better to contribute the property to the s corp to create basis or have the owner draft a loan from owner to the s corp as of 12/31/2021 to create debt basis?

Thanks!

ProSeries Professional

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Best answer by dkh

I don't believe the person the client purchased the property from qualifies as a "predecessor". If that was the case, then used property would never qualify for bonus depreciation because there would always be a predecessor.

To take the $200k loss there must be basis, either scenario gives the client basis. So six of one, half a dozen of the other for which way to create the basis. Does the client expect the corporation to pay back the $400k when profits allow?

dkh

Level 15

Why would there be a $200k loss - wasn't there any other activity in this business - had sales, paid wages to the shareholder, other operating expenses ?

A

Avs19Author

Level 6

There was an additional 61k loss. Just using whole numbers to simplyfy things. The business started in November. Only 2 months of income with a lot of expenses.

dkh

Level 15

that used property qualifies but the property cannot have been used by the taxpayer or a predecessor at any time prior to such acquisition. then only new property would qualify based on this......

I believe TCJA removed the requirement that property must be new to qualify for Bonus depreciation

A

Avs19Author

Level 6

If I'm reading it correctly, this is what it's still saying under TCJA rules

https://www.irs.gov/newsroom/additional-first-year-depreciation-deduction-bonus-faq

A

Avs19Author

Level 6

In this situation, do you think it would be better to have the client contribute the property at it's 200K FMV or draft up a loan from the owner to the company for the 400K that was paid from personal funds?

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