Question

Suppose that at the beginning of 2023 jamaal's basis in his s corporation stock is $1,000 and he has a $10,000 debt basis associated with a $10,000 loan he made to the s corporation. in 2023, jamaal's share of s corporation income is $4,000, and he received a $7,000 distribution from the s corporation. what is jamaal's stock and debt basis after these transactions?

(a) 6,000
(b) 0
(c) 4,000
(d) 7,000
(e) none of the choices

Answer 1

To calculate Jamaal's stock and debt basis after the transactions, add income and subtract distribution from the beginning basis for stock basis, while the debt basis remains unchanged.

Step-by-step explanation:

To calculate Jamaal's stock and debt basis after the transactions, we need to take into account the income and distribution he received.

First, let's calculate the stock basis. Jamaal's basis at the beginning of 2023 was $1,000. He received a share of S corporation income of $4,000, so his stock basis increases by $4,000. However, he also received a distribution of $7,000, which decreases his stock basis by $7,000. Therefore, his stock basis after the transactions is:

Stock basis = Beginning basis + Income - Distribution
Stock basis = $1,000 + $4,000 - $7,000 = $-2,000

Now let's calculate the debt basis. Jamaal had a debt basis of $10,000. He did not receive any income or distribution that affects his debt basis. Therefore, his debt basis remains unchanged:

Debt basis = Beginning basis
Debt basis = $10,000

So, Jamaal's stock basis after the transactions is -$2,000 and his debt basis remains at $10,000. Therefore, the correct answer is (e) none of the choices.