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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?
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