Questions: Multiple Choice Question Flash receives a distribution of long-term capital gain property worth 40,000 (basis to the S corp of 10,000) from the S corporation in which he is a 50% shareholder (never previously a C corporation). Flash's basis in the S corporation before the distribution was 52,000. What is Flash's basis after the distribution? 27,000 0 42,000

Multiple Choice Question

Flash receives a distribution of long-term capital gain property worth 40,000 (basis to the S corp of 10,000) from the S corporation in which he is a 50% shareholder (never previously a C corporation). Flash's basis in the S corporation before the distribution was 52,000. What is Flash's basis after the distribution?
27,000
0
42,000

Transcript text: Multiple Choice Question Flash receives a distribution of long-term capital gain property worth $\$ 40,000$ (basis to the $S$ corp of $\$ 10,000$ ) from the $S$ corporation in which he is a $50 \%$ shareholder (never previously a C corporation). Flash's basis in the $S$ corporation before the distribution was $\$ 52,000$. What is Flash's basis after the distribution? \$27,000 \$0 \$42,000

Solution

Solution Steps

To determine Flash's basis in the S corporation after the distribution, we need to adjust his original basis by the fair market value of the property received. The distribution of property reduces the shareholder's basis in the S corporation by the fair market value of the property distributed.

Start with Flash's original basis in the S corporation.
Subtract the fair market value of the property received from the original basis to find the new basis.

Step 1: Determine Original Basis

The original basis in the S corporation is given as $ 52000 $.

Step 2: Identify Fair Market Value of Property

The fair market value of the property received by Flash is $ 40000 $.

Step 3: Calculate New Basis

To find the new basis after the distribution, we subtract the fair market value of the property from the original basis: \[ \text{New Basis} = \text{Original Basis} - \text{Property Value} = 52000 - 40000 = 12000 \]