Suppose at the beginning of 2018, 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 a $5,000 suspended loss from the S corporation. In 2018, Jamaal contributed $8,000 to the S corporation, and the S corporation had ordinary income of $4,000. Assume that Jamaal owns 40% of the S corporation. What is Jamaal's stock and debt basis at the end of 2018?

Question

Quizplus · Accepted Answer

By rule, any net increase in basis for the year first restores the shareholder's debt basis (up to the outstanding debt amount) and then the shareholder's stock basis. Jamaal's debt basis is calculated as: $0 beginning of year basis + $8,000 contribution + $1,600 ($4,000 × 40%) share of S corporation income − $5,000 suspended loss = $4,600 at the end of 2018. Jamaal's stock basis remains at zero at the end of 2018 because his debt basis has not been restored to its outstanding debt amount, $10,000.

Suppose at the Beginning of 2018, Jamaal's Basis in His