Clampett, Inc. has been an S corporation since its inception. On July 15, 2017, Clampett, Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on January 1, 2017, was $30,000. For 2017, J. D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. What is the amount of income J. D. recognizes related to Clampett, Inc. in 2017?

Question

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J.D.'s basis in his Clampett, Inc. stock is increased by the $10,000 of ordinary income allocated to him in 2017, making his basis $40,000 ($30,000 + $10,000). When he receives the $50,000 distribution on July 15, 2017, only $40,000 of it is tax-free return of basis, and the remaining $10,000 is a capital gain. Therefore, J.D. recognizes $10,000 of income related to Clampett, Inc. in 2017.