Question

flash receives a distribution of long-term capital gain property worth $40,000 (basis to the s corp of $10,000) from the s corporation in which he is a 50% shareholder (never previously a c corporation). flash's basis in the s corporation before the distribution was $52,000. what is flash's basis after the distribution?

Answer 1

Flash's basis in the S corporation after the distribution will be equal to $27000.

Within any organization or firm, there are multiple shareholders of the firm. Each shareholder has a share in the company's profit and even has the say whenever any important decision has to be taken. Flash is also a shareholder in S corporation. Now, at first Flash increases his basis by 50% of the gain on property distribution by S corporation. This is expressed as

Increased basis = (Capital worth - Basis to S corporation) × 50%

Increased basis = ($40000 - $10000) × 0.5

Increased basis = $15000

Now, Flash reduces the basis as

Reduced basis = Basis before distribution + Increased basis - Capital worth

Reduced basis = $52000 + $15000 - $40000

Reduced basis = $27000

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