Can anyone confirm this for me?
I'm looking at the Bekcer MC for S-Corps and I had a question w/ the following information:
100% ownership of S-Corps
Beginning basis = 25,000
Ordinary income= 1,000
L-T Capital loss= 3,000
S-Corp cash distribution to owner: 30,000
How much of the 30,000 distribution is taxable to the shareholder?
I initially got the question wrong because I remembered that distributions were only non-taxable to the extent of basis (AFTER distributions are subtracted). Therefore, I thought that the taxable distribution would be:
25,000 + 1,000 =26,000 basis - 30,000 distribution = 4,000 distribution is taxable.
However, does the rule of the loss limitation only apply if the loss in question is an ordinary loss... not a capital loss?
The correct answer is 7,000 [(25+1-3)-30].