An S Corporation distributes property (Basis $20,000, FMV $50,000) to its sole shareholder. The shareholder has a stock basis of $100,000 prior to the distribution. What is the shareholder's basis in the stock AFTER the distribution?

Answer options:

$50,000

$70,000

$80,000

$100,000

How to approach this question

Multi-step: 1. Corp Gain (FMV - Basis). 2. Increase Stock Basis by Gain. 3. Decrease Stock Basis by FMV of distribution.

Full Answer

C.$80,000✓ Correct

1. Corp Gain = $50k - $20k = $30k. <br/>2. Shareholder Basis Increase = $100k + $30k (gain passed through) = $130k. <br/>3. Distribution Reduction = $130k - $50k (FMV of property) = $80,000.

Common mistakes

Forgetting to increase basis for the gain recognized by the S Corp.

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