Suppose at the beginning of 2016, 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 2016, 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 2016 from these transactions?
A) $0.
B) $4,000.
C) $6,000.
D)$7,000.
E)None of these

Question

Quizplus · Accepted Answer

Jamaal's total basis in his S corporation stock at the end of 2016 is $11,000 ($1,000 + $10,000). His distribution of $7,000 reduces his stock basis to $4,000 ($11,000 - $7,000). Since his share of S corporation income ($4,000) is less than his remaining stock basis ($4,000), he reports $0 income in 2016. However, he will still need to track his debt basis for future years.

Suppose at the Beginning of 2016, Jamaal's Basis in His