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S-Corp distribution in excess of basis

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    S-Corp distribution in excess of basis

    I don't seem to find good information on what happens to basis for a taxable distribution AFTER it has been correctly reported on the 1040 as Cap.Gain.

    Does paying taxes on a distribution in excess of basis increase basis? I don't think so but it doesn't seem to be fair.

    #2
    Found answer in old thread

    Bees Knees Bees Knees is offline
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    Join Date
    May 2005
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    5,409
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    That is kind of what happens.

    Actually, basis can never go in the hole. So what happens is say you start with $1,000 basis. You take $1,200 in distributions.

    $1,000 of the distribution reduces basis to zero.
    $200 of the distribution is a capital gain on Schedule D.

    The $200 gain portion of the distribution does nothing to basis as it is already at zero. Basis after the $1,200 distribution stays at zero. So if this happened in 2006, your basis as of 1/1/2007 begins at zero.

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