I have 2 clients I am working with - each doctors, now owning a portion of a S Corporation.
During 2021, doctor A (previously 100%) sold 25% of his practice to doctor B (previously 0%). The doctors did an approximate valuation and decided that the 25% would be purchased for $187K. Doctor B is now paying the $187K to doctor A over a 5 year period.
My question is regarding each of their personal tax returns.
- For Doctor B, I believe only impact I should be showing to his personal return is the new K-1 from the business, with a starting basis of $187K, even though he still has 4.5 years left to the loan.
- For Doctor A, I have his K-1 entered. I also know that the sale should also show up on his schedule D, however because the valuation was just an approximate, I don't know that I have an accurate cost basis to use (the sale would technically result in a loss based on an approximate valuation of $878K for the total company or $219K for 25% vs. the sale price of $187K). I am also unsure of the impact to his basis in the company - if it should be reduced by 25% or if there is an additional impact based on the sale price, etc.
Any guidance would be greatly appreciated! Thank you in advance!
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Megan Muccio CPA
Megan D. Muccio, CPA, PLLC
Melville NY
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