Question

Mark owns 50% of an S corporation, Wick, Inc., and has a basis in that corporation of $3,000 at the beginning of Year 1. At the end of Year 1, Wick reports ordinary income of $2,000 (before considering distributions) and makes a distribution to Mark of a truck with an adjusted basis of $5,000 and a fair market value of $7,000. How much income must Mark report on his personal Year 1 return as a result of this distribution

Answer 1

$3,000

Step-by-step explanation:

Mark's basis at the beginning of the year = $3,000

Mark's share of Wick's income = $2,000 x 50% = $1,000

the distribution of the truck = $5,000

Mark's taxable income = basis - share of profits - truck's basis = $3,000 - $1,000 - $5,000 = -$3,000, so Mark has to report a $3,000 income from this distribution.