Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $43,000 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $41,500. For 2021, J.D. was allocated $10,700 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 stock basis. His initial basis of $41,500, increased by his share of the ordinary income ($10,700), becomes $52,200. The distribution of $43,000 reduces his basis to $9,200 ($52,200 - $43,000), but does not exceed his adjusted basis, so no capital gain is recognized.

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