Question

Jenny corporation (an s corporation) is owned entirely by craig. at the beginning of 2016, craig's adjusted basis in his jenny corporation stock was $20,000. jenny reported ordinary income of $5,000 and a capital loss of $10,000. craig received a cash distribution of $35,000 in november 2016. what is craig's gain from the distribution?

Answer 1

The basis is increased by the ordinary income to $25,000. The $35,000 distribution is taken next and, since it exceeds the basis, there is a $10,000 gain. The capital loss is nondeductible because there is no basis left after the deduction from the distribution for Craig and it is carried over.