Can a S-Corp shareholder deduct his $226k stock basis even in using an asset sale?

[Running26]

S-Corp Shareholder sells his insurance agency as an asset sale instead of a stock sale, but seller & buyer agree on a large Goodwill (L-T Capital Gain) allocation of purchase price.  Shortly after the sale his insurance agency is dissolved.  Can the shareholder take a $226k L-T capital loss on the $226k stock basis?

It is obvious that he could have used the stock basis if the transaction would have been a sale of stock.

I am assuming that he could still write off the stock basis in an asset sale.  

Thoughts?

[rbynaker]

You lost me.  Where did the cash go?  Unless the S Corp was purchased/inherited from someone else or previously a C Corp, the outside basis would likely be the same as the inside equity.  Double-entry bookkeeping is magical.

[Running26]

The proceeds from the asset sale went into the business and then a shareholder distribution was made.

The gain from the sale of assets (primarily LTCG) and distribution was reflected on the final K-1 and was properly accounted for in arriving at the $226k ending stock basis.  The K-1 LTCG pass through is $454K, more than enough to absorb the stock loss.

The shareholder had bought the business 25 years ago at $275k and had not eroded that much basis with limited S/H distributions.

Hope that helps.

[Running26]

edit..................Shareholder had bought the stock of the prior owner personally 25 years ago so there outside basis.

[qbteachmt]

"Can the shareholder take a $226k L-T capital loss on the $226k stock basis?"

Are you confusing write off, deduction (for purposes of net) and loss?

It isn't clear how this person lost their entire basis in this sale.

[rbynaker]

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@Running26 wrote:

edit..................Shareholder had bought the stock of the prior owner personally 25 years ago so there outside basis.

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Fair enough.  Sounds like LTCL when the S Corp is dissolved.

[Running26]

Of course, outside stock basis is used to determine if any ordinary business loss is deductible.

The gain on the asset sale (480k) was passed through to the shareholder on the K-1.  I am talking about the remaining stock basis bought from the owner personally which has been adjusted each year by income & distributions, etc.  Can the selling shareholder write off the remaining cost of his investment.  Or is his remaining stock basis lost?  That is the point of my question.

[sjrcpa · Accepted solution]

Whatever stock basis is left after accounting for the asset sale and distribution in the year of sale is deductible as long-term capital loss on the disposition of his stock in the S corp.