S Corporation Dissolution-Basis

[equinecpa]

I have a client who wound up their S-corporation this year. Pertinent info: Company was a C-corp until 2010 when it became an S-corp. Was 2 shareholder company until 01/2012 when company redeemed shares of one shareholder. There are no built-in gains. Company liquidated its assets this year-mostly real estate, at a loss.

Basis: Do I need to worry about shareholder basis anywhere here? I'm ending up with a large capital loss on line 9 of the K-1, I'm not sure it's all deductible?

[DaveinTexas]

Indeed you do

I have a client who wound up their S-corporation this year. Pertinent info: Company was a C-corp until 2010 when it became an S-corp. Was 2 shareholder company until 01/2012 when company redeemed shares of one shareholder. There are no built-in gains. Company liquidated its assets this year-mostly real estate, at a loss.

Basis: Do I need to worry about shareholder basis anywhere here? I'm ending up with a large capital loss on line 9 of the K-1, I'm not sure it's all deductible?

Losses passed through to S corporation shareholders are limited by the following provisions in the order listed (Temp. Treas. Reg. § 1.469-2T(d)(6)):
The basis limitations of IRC § 1366(d),
The at-risk limitations of section 465, and
The passive activity loss limitation of section 469.

Losses in a final year S Corp are not automatically deductible because it is the final year, the same rules apply to losses limited to basis as if it was any other year.