Question

Clampett, Inc., has been an S corporation since its inception. On July 15, 2020, Clampett, Inc., distributed $50,000 to J.D. His basis in his Clampett, Inc., stock on January 1, 2020, was $45,000. For 2020, J.D. was allocated $10,000 of ordinary income from Clampett, Inc., and no separately stated items. What is the amount of income J.D. recognizes related to Clampett, Inc., in 2020

Answer 1

$5,000

Step-by-step explanation:

Given:

Basis distribution = $50,000

Basis stock = $45,000

Ordinary income = $10,000

Computation of Capital gain:

Capital gain = Basis distribution - Basis stock - Ordinary income

Capital gain = $50,000 - $45,000 - $10,000

Capital gain = - $5,000

Computation of J.D. income related to Clampett = Ordinary income + Capital gain

Computation of J.D. income related to Clampett = $10,000 - $5,000

Computation of J.D. income related to Clampett = $5,000