[Anonymous]

I got a little confused tonight while working the S-corp problems, and was hoping someone could clarify this for me.

Lets say your basis in an S-corp where you own 100% of the shares is $10,000 at the beginning of the year. You have a an $8,000 loss for the year, and had a distribution of $4,000.

Are you supposed to take out the LOSS or the DISTRIBUTION first?

Taking the loss first would seem to result in a $2,000 capital gain:

10,000 Beginning Basis

(8,000) Loss

= 2,000, so the first 2,000 of the distribution would be a return of capital, the other half capital gain?

OR, are you supposed to take the distribution first?

10,000 Beginning basis

(4,000) distribution

=6,000 to soak up the loss, with 2,000 carried forward

Becker says to take the distribution first, creating the loss to carry forward. HOWEVER, in a different question, where there was sufficient basis either way, it said to add in income, deduct losses BEFORE taking out the distribution. Does the beginning basis amount have anything to do with what order you calculate ending basis and determine what is taxable, etc?

Thanks, and sorry if this is long.