If you're liquidating the company, you can generally recognize a loss.We haven't discussed partnerships and LLCs taxed as partnerships because the rules can be much more involved.The problem is considerably diminished if the asset is easily valued. That way the corporation (or the shareholders in an S corporation) can get the tax benefit of the loss.

Distributing depreciated property may be worst than distributing appreciated property. Selling the property and distributing the cash may also make sense in the case of appreciated property since you avoid any arguments over the fair market value of the assets and you'll have the cash to pay any taxes. Be sure to explain exactly what you want to do and give him or her all the facts.

the value of the distribution or dividend will be the fair market value of the property, but the company will get no benefit for the loss. The tax basis (cost less depreciation) is $26,840, but the fair market value is $20,000. If your real intention is to transfer property from one entity to another, things can get more complicated. We didn't discuss the problems you might have with an S corporation if there are built-in gains.

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That will generate capital gain and restrict your deduction for losses generated by the corporation.

The rules discussed above apply to nonliquidating distributions.Shareholders in an S corporation must keep careful track of their tax basis.The amount of the tax basis determines the tax treatment of such items as flow-through losses and corporate distributions.The result would be similar if Madison is a regular corporation, except that the tax would have to be paid at the corporate level.However, in this case there would be a second tax at the shareholder level.The gain is passed through to the shareholder and has to be reported on his tax return.