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15 July, 10:23

Assume that at the end of 2019, Clampett, Inc. (an S corporation) distributes property (fair market value of $40,000, basis of $5,000) to each of its four equal shareholders (aggregate distribution of $160,000). At the time of the distribution, Clampett, Inc., has no corporate earnings and profits and J. D. has a basis of $50,000 in his Clampett, Inc., stock. What is J. D.'s stock basis after the distribution

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  1. 15 July, 11:32
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    J. D.'s stock basis after the distribution is $85,000

    Explanation:

    In order to calculate the J. D.'s stock basis after the distribution we would have to use the following formula:

    J. D.'s stock basis after the distribution=original basis + increase/decrease in basis from gain from property distribution

    original basis=$50,000

    basis from gain from property distribution=$40,000-$5,000

    basis from gain from property distribution=$35,000

    Therefore, J. D.'s stock basis after the distribution=$50,000+$35,000

    J. D.'s stock basis after the distribution=$85,000
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