Clampett, Inc. has been an S corporation since its inception. On July 15, 2019, Clampett, Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc.
Stock on January 1, 2019, was $45,000. For 2019, J. D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. How much capital gain does J. D. recognize related to Clampett, Inc. in 2019?

Question

Quizplus · Accepted Answer

$0. The distribution is not taxable because J. D.'s basis is $55,000 prior to the distribution ($45,000 original basis + $10,000 increase in basis from distributive share of ordinary income). Thus, J. D. has no capital gain.