Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $49,500 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $39,500. For 2021, J.D. was allocated $11,100 of ordinary income from Clampett, Incorporated, and no separately stated items. How much capital gain does J.D. recognize related to Clampett, Incorporated, in 2021?

Question

Quizplus · Accepted Answer

J.D. does not recognize any capital gain from the distribution. The distribution is first applied against his basis in the stock. His initial basis of $39,500 plus the allocated ordinary income of $11,100 increases his basis to $50,600. Since the distribution of $49,500 is less than his adjusted basis of $50,600, there is no capital gain, and his remaining basis in the stock would be $1,100.

Clampett, Incorporated, Has Been an S Corporation Since Its Inception