Question

Marcelo had a debt basis of 4,000 and a stock basis of3,000 in an S corporation that reported his share of a loss as 6,000. In the following year, the S corporation reported Marcelo's share of income as5,000. The level of debt outstanding between Marcelo and the Corporation didn't change in the following year. What is Marcelo's stock basis and debt basis at the end of the following year?

Answer 1

Marcelo's stock basis at the end of the following year is $2,000 and his debt basis remains $4,000.

Step-by-step explanation:

To determine Marcelo's stock basis and debt basis at the end of the following year, we need to consider the loss and income reported by the S corporation. In the first year, the S corporation reported Marcelo's share of a loss as $6,000. This loss reduces Marcelo's stock basis and debt basis by $6,000 each.

In the following year, the S corporation reported Marcelo's share of income as $5,000. This income increases Marcelo's stock basis by $5,000, but since the level of debt outstanding didn't change, his debt basis remains the same.

Therefore, at the end of the following year, Marcelo's stock basis would be $3,000 - $6,000 + $5,000 = $2,000, and his debt basis would still be $4,000.