How to Calculate Basis for S Corporation Stock
A shareholder's basis in S corporation stock is calculated by making a series of upward and downward adjustments to the shareholder's initial stock basis.
You can calculate a shareholder's basis in S corporation stock as follows:
initial basis
+ capital contributions
+ ordinary income (pro rata share)
+ separately stated income (pro rata share)
+ tax-exempt income (pro rata share)
+ non-oil and non-gas depletion in excess of the property's basis (pro rata share)
- distributions not reported as income
- nondeductible, noncapital expenses such as fines and penalties (pro rata share)
- ordinary loss (pro rata share)
- separately stated loss and deductions (pro rata share)
- oil and gas depletion that doesn't exceed the property's basis (pro rata share)
= new basis
Adjustments are made in a certain order. Here are the ordering rules:
(1) basis is first increased by the pro rata share of income items and excess depletion
(2) basis is next decreased by distributions
(3) basis is then decreased by nondeductible, noncapital expenses*
(4) basis is finally decreased by deductions and losses
*A shareholder can elect to have losses reduce their stock basis before accounting for nondeductible, noncapital expenses.
Note that a shareholder's basis in S corporation stock can never go below zero (a negative basis isn't possible).
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Пікірлер: 11
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@Edspira
11 ай бұрын
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@Edspira
10 ай бұрын
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I have a question. My son has a business that started in 2021 as a SM LLC. In 2024, he converted to an S-Corp for tax purposes (he is the sole owner still). My question is: how do I calculate the starting basis for him for 2024? He has made money each of the 3 years and has no debt. He also started his business with some personal equipment that is still in use. Does the basis start at $0 in 2024? or do I account for what he contributed and made in the previous 3 years? thank you.
Need to create an excel schedule for this. Build the ordering rules into the calc.
@whoisdesirtv
6 ай бұрын
Did you make one or find one?
@warpfrenzy
6 ай бұрын
@@whoisdesirtv nope lol.
If S corp takes a Section 179 deduction and passes thru to owner, this 179 deduction will reduce owner basis, so if the asset is sold later would the recapture gain then increase the owner basis? Seems like it should as basis was reduced by the 179 deduction?
@headlibrarian1996
6 ай бұрын
I believe it would be reported on the shareholders’ K-1s in Box 17, which of course increases basis.