I am a CPA in need of some assistance. I am trying to account for the situation below correctly on the tax return, but haven't dealt with this circumstance before and want to make sure we get it reported correctly.

S-Corp has 2 owners, husband and wife. They owned the building they operate their business in and it was encumbered by debt. They decided to refinance the property into a Partnership, same ownership, in July 2015.

At the time of refinancing, the property had an adjusted basis of:

Building - $343,123
Improvements - $32,088
Total Adj Basis - $375,211

The notes outstanding were for $448,606 (mortgage) and $75,863 (LOC secured by building).

The property was refinanced into the Partnership for $527,869 (mortgage and LOC, and $3,400 closing costs), and a floating line of credit with availability of $82,131 that was available to advance on upgrades, etc.

I'm trying to determine if there are any current tax consequences on the refinance since there is basically a "built-in gain" of $130K since the refi exceeds the basis.

To further muddy, they have since sold this building in 2016 about a week ago where the gains from sale will be recognized.

I'm trying to get some advice from other CPA or tax guru who have dealt with similar circumstances in the past? The client of course did not consult prior to making this transaction as I would have told them it wasn't worth the time since both entities were already an LLC.