[Vanessachy]

Baker, an individual, owned 100% of Alpha, an S corporation. At the beginning of the year, Baker’s basis in Alpha Corp. was $25,000. Alpha realized ordinary income during the year in the amount of $1,000 and a long-term capital loss in the amount of $3,000 for this year. Alpha distributed $30,000 in cash to Baker during the year. What amount of the $30,000 cash distribution is taxable to Baker?

Incorrect

A. $0

B. $5,000

C. $4,000

D. $7,000

The answer is 4000, where is the 4000 from? basis goes down to 23000

Far, 64 82
Reg, 60 86
Aud, 74 82
Bec, 70 81
Done done done! I did it!!!
Licensed CPA in MA, issued October 2016

Far 10/26/2015, 64, 1/4/2016, 82
Reg 7/10/2015, 60, 2/27/2016, 86
Aud, 5/9/2016, 74 (ouch), 7/26/2016, I cannot wait to take this test again
Bec, 6/10/2016, 70,9/8 retake

[Anonymous]

Rule of thumb:
Stock Basis is adjusted annually, as of the last day of the S Corp year, in the ff. order:
a. Increased for income items and excess depletion
b. Decreased for “DNNLD”
D – Distributions
N – Nondeductible Expenses & Depletion
N – Noncapital Expenses & Depletion
L – Loss &
D – Deduction

+25,000……………Basis
+1,000……………..Ord. Inc.
=27,000………….. Total
-(30,000)…………..Distn
=3,000……………..Excess Distribution which represents Capital Gain

1,000……………….Ord Inc.
3,000……………… Capital Gain
=4,000…………….Taxable Total Gain

LT-CL of $3,000 to be carried backward/forward 3/5-years

[Vanessachy]

@Amor, thank your for the explanation. it is so detailed

Far, 64 82
Reg, 60 86
Aud, 74 82
Bec, 70 81
Done done done! I did it!!!
Licensed CPA in MA, issued October 2016

Far 10/26/2015, 64, 1/4/2016, 82
Reg 7/10/2015, 60, 2/27/2016, 86
Aud, 5/9/2016, 74 (ouch), 7/26/2016, I cannot wait to take this test again
Bec, 6/10/2016, 70,9/8 retake

[Author]

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