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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.
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