On January 2, 2013, David loans his S corporation $10,000. By the end of 2013 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2014, the company's operating income is $10,000. The company makes 2014 distributions to David of $11,000. David reports a(n):

Question

Quizplus · Accepted Answer

David's stock basis is zero, and his loan basis is $8,000. The $10,000 operating income restores his loan basis to $10,000. The $11,000 distribution reduces his loan basis to zero and results in a $1,000 long-term capital gain (LTCG).

On January 2, 2013, David Loans His S Corporation $10,000