Personal property for S corp debt

[thomtax]

I have just learned that the sole owner of an S corp. gave some personal property to an individual to satisfy a loan that had been made to the corp. What would be the proper way to handle this?

Thanks for your opinions.

LT

[Matt Sova]

Sale of property

When you say personal property, do you mean the owner owned the property outside the S-Corp or it was equipment owned and used by the corp?

If it was corporate equipment then the S-Corp sold the equipment for the amount of the loan. Gain or loss would be recognized on the sale of that piece of property.

If the owner owned the property then, off the top of my head, he sold the property to the S-Corp for the amount of the debt (debit asset credit officer loan) then the S-Corp sold the equipment for no gain or loss (debit loan credit asset). He would personally have a gain if his basis in the equipment was less than the loan. But, if this was personal use property, there would be no loss on the sale to the S-Corp.

I haven't really researched that last part, it's pretty much off the cuff.

[ChEAr$]

I take it to mean owner gave away his OWN personal property (as opposed to personal property owned by the corp.) in satisfaction of a corporate debt.

Therefore, debit the liability account and credit shareholder's distributions.

[JohnH]

If he gave his own personal property to satisfy a corporate debt, wouldn't this be either a contribution of capital or else a simple shift of the liability? Whereas the corp originally owed the third party, it now owes the shareholder. Then the shareholder might also have a transaction to report on his personal return, depending upon the nature and basis of the asset transferred to the third party.

[ChEAr$]

If he gave his own personal property to satisfy a corporate debt, wouldn't this be either a contribution of capital or else a simple shift of the liability? Whereas the corp originally owed the third party, it now owes the shareholder. Then the shareholder might also have a transaction to report on his personal return, depending upon the nature and basis of the asset transferred to the third party.

If it's a contribution to capital, the corporation should then issue shareholder added shares of stock therefor.

I used the term "shareholder's distribution", because at the end of the year that account is closed out into retained earnings anyway.

Alternately the value of the property could be set up as a shareholder loan and paid back as cash flow permits, with interest of course if it increases value of that account more than $25,000.

[thomtax]

When you say personal property, do you mean the owner owned the property outside the S-Corp or it was equipment owned and used by the corp?

If it was corporate equipment then the S-Corp sold the equipment for the amount of the loan. Gain or loss would be recognized on the sale of that piece of property.

If the owner owned the property then, off the top of my head, he sold the property to the S-Corp for the amount of the debt (debit asset credit officer loan) then the S-Corp sold the equipment for no gain or loss (debit loan credit asset). He would personally have a gain if his basis in the equipment was less than the loan. But, if this was personal use property, there would be no loss on the sale to the S-Corp.

I haven't really researched that last part, it's pretty much off the cuff.

Thanks - this was personally owned property outside the corp.

LT