Suppose at the beginning of 2017,Jamaal's basis in his S corporation stock is $1,000,and he has a $10,000 debt basis associated with a $10,000 loan he made to the S corporation.In 2017,Jamaal's share of S corporation income is $4,000,and he received a $7,000 distribution from the S corporation.How much income does Jamaal report in 2017 from these transactions?

Question

Quizplus · Accepted Answer

Jamaal's total basis at the beginning of the year is $11,000 ($1,000 stock basis + $10,000 debt basis). 
His share of S corporation income is $4,000, which increases his stock basis in the S corporation to $5,000 ($1,000 + $4,000). 
His distribution of $7,000 reduces his stock basis in the S corporation to $-2,000 ($5,000 - $7,000). However, because his debt basis is still intact, he can use it to offset the distribution. 
Therefore, Jamaal reports $6,000 of income in 2017 ($4,000 share of S corporation income + $2,000 excess distribution).

Suppose at the Beginning of 2017,Jamaal's Basis in His S