Suppose at the beginning of 2014, 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 2014, 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 2014 from these transactions?

Question

Quizplus · Accepted Answer

Jamaal's initial basis in his S corporation stock is $1,000, and he has a debt basis of $10,000. His total basis in the S corporation is therefore $11,000.

Jamaal's share of S corporation income for 2014 is $4,000, which increases his basis to $15,000 ($11,000 + $4,000).

Jamaal received a distribution of $7,000, which reduces his basis to $8,000 ($15,000 - $7,000). Since this distribution exceeds Jamaal's basis in the S corporation stock, he has to report the excess as a capital gain.

Therefore, Jamaal reports $6,000 of income in 2014: $4,000 of S corporation income and $2,000 ($7,000 distribution - $5,000 basis) of capital gain.

Suppose at the Beginning of 2014, Jamaal's Basis in His