On January 2,2016,David loans his S corporation $10,000.By the end of 2016 David's stock basis is zero and the basis in his note has been reduced to $8,000.During 2017,the company's operating income is $10,000.The company makes 2017 distributions to David of $11,000.David reports a(n):

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David's stock basis is zero, and his loan basis is $8,000 at the end of 2016. The company's operating income of $10,000 in 2017 increases his basis, but the $11,000 distribution exceeds his basis by $1,000, resulting in a $1,000 long-term capital gain (LTCG).

On January 2,2016,David Loans His S Corporation $10,000