Question

This year, Jiang, the sole shareholder of a calendar year S corporation, received a distribution of $17,000. On December 31 of the prior year, his stock basis was $3,000. The corporation earned $12,000 ordinary income during the year. It has no accumulated E&P. Which statement is correct? Ignore the 2090 QB1 deduction.

a. Jiang's ordinary income is $15,000.
b. Jiang recognizes a $2,000 LTCG.
c. Jiang's stock basis will be $2,000.
d. Jiang's return of capital is $11,000.

Answer 1

b. Jiang recognizes a $2,000 LTCG is correct

Step-by-step explanation:

The correct answer is b.Jiang recognizes a $2,000 LTCG is correct

In this year his stock basis before distribution = 3,000 + 12,000 = 15,000

After reducing it by the amount of distribution, stock basis reduces o $0.

And LTCG recognized = 17,000 - 15,000 = 2,000