Loan basis in corporation

  • Creator
    Topic
  • #3180365
    animalwithin
    Participant

    How come the loan the corporation obtains is not factored into the individual owners’ basis?

    Mark and Mary formed MM, Inc. as an S corporation. Each contributed $50,000 in exchange for five shares of corporate stock. In addition, MM obtained a $60,000 loan from a local bank that was still outstanding at the end of the year. In MM’s first year of operation, it reported a loss of $20,000 and did not make any distributions to the shareholders. What is Mark’s basis in his MM shares at the beginning of the second year?

    The answer is $40,000 which is his original contribution of $50k, reduced by his share of the loss at $10k. I get that but I thought that loans are allocated to each person comprise their basis, no? Is that partnerships I’m thinking of?

Viewing 2 replies - 1 through 2 (of 2 total)
  • Author
    Replies
  • #3180536
    Kameron
    Participant

    Loans only increase the basis for partnerships. S-Corps have 2 different kinds of basis. Stock basis and Shareholder Loan Basis. Therefore the only basis that would be considered for a loan, is the amount that the shareholder personally lends the company. In this case, this would increase the loan basis. All other loans do not increase the basis.

    AUD - 80
    BEC - 86
    FAR - 81
    REG - 89
    Keep it going!
    #3180692
    animalwithin
    Participant

    Thank you!

Viewing 2 replies - 1 through 2 (of 2 total)
  • You must be logged in to reply to this topic.