Question

Suppose that at the beginning of 2019 Jamaal's basis in his S corporation stock is $0, he has a $0 debt basis associated with a $10,000 loan he made to the S corporation, and he has a $5,000 suspended loss from the S corporation. In 2019, Jamaal contributed $8,000 to the S corporation, and the S corporation had ordinary income of $4,000. Assume that Jamaal owns 40 percent of the S corporation. How much net income or loss does Jamaal report this year from the S corporation

Answer 1

Answer:

$0 stock basis; $10,000 debt basis

$1,000 (original stock basis) + $4,000 ordinary income − $7,000 distribution = $0 stock basis and a $2,000 distribution in excess of stock basis generating $2,000 of capital gain. Debt basis is not reduced by distributions.

Explanation: