Capital Gains - Sub S Corp to private

State of New York - The title to my mothers house is presently under a Sub S corporation, which she owns 100%. We want to change the name on the title to my mothers name. Will she be subject to capital gains? If so, is it based on market value minus the purchase price or is the cost basis reduced by the depreciation taken over the past 15 years? Also, can we indicate a transaction price that is below market value to minimize capital gains? Finally, are their any alternatives that we can look into?

[url]http://www.irs.gov/vsearch/iatoc[/url]

i did a search under s corporation. they will have all the information you need

If she purchases the property at fair market value, the corporation would have a gain equal to the amount received, less the adjusted basis (cost less depreciation). The portion of the gain equal to the depreciation taken would be treated as ordinary income and the rest of the gain, if any, would be capital gain. If she purchases the property at less than fair market value, the excess is treated as a distribution of property to your mother.

An alternative would be to treat the transfer of title not as a sale, but as a distribution of property from the corporation.

Whether distributions of cash or property are taxed to the shareholder depends on whether the S corporation has earnings and profits.

No earnings and profits. An S corporation is deemed to have no earnings or profits unless they are attributable to tax years when the corporation was not an S corporation or to S corporation years beginning before 1983.
If an S corporation has no earnings or profits, distributions are treated first as a nontaxable return of capital to the extent of the shareholder's stock basis, then as a gain from the sale or exchange of property. (IRC section 1368(b); Reg. section 1.1368-1(c))

Earning and profits. With earnings and profits, distributions are treated as follows:
• A nontaxable return of capital to the extent of the corporation's "accumulated adjustments account." The accumulated adjustment account (AAA) is used to determine the tax effect of distributions by an S corporation with accumulated earnings and profits. (For more on AAA, see IRC section 1368(c), IRC section 1368(d), and IRC section 1368(e)(1); Reg. section 1.1368-2(a)(2) and Reg. section 1.1368-2(a)(3).);
• Dividends to the extent of the S corporation's accumulated earnings and profits;
• A nontaxable return of capital to the extent of the shareholder's remaining stock basis; and
• Gain from the sale or exchange of property. (IRC section 1368(c); Reg. section 1.1368-1(d))
Before applying the rules, the shareholder's stock and AAA are adjusted for the corporate items passed through from the corporate tax year during which the distribution is made.