Question

Jeff owns 50% of an S corporation's stock with a basis in his stock of $50,000 on January 1. In addition, the S corporation owes Jeff $30,000 on January 1. The debt has a basis of $30,000 and is evidenced by a note. The S corporation reports an ordinary loss of $150,000 for the current year. The next year, it reports ordinary income of $20,000. On January 1 of the third year, the note is repaid. Due to the repayment of the note, Jeff must report what?

Answer 1

Stock 999 $50,000 ($50,000) 1/4 Basis minus. year I loss [$150,000 x 50 %] 1231 Basis plus: y ear 2 income [$20,000 x 50%] Basis Debt $30,000 ($25,000) $ 5000 $10,000 $ 15,000 - 12/31 Amount realized minus: adjusted basis capital gain $ 30,000 ($15,000) $15,000