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S corporations: shareholder basis and transactions

TCP Chapter 8 · Area II · Blueprint II.B

An S corporation's income, losses and distributions all run through each shareholder's basis, and basis decides whether a loss is deductible and whether a distribution is taxed. The Blueprint expects you to compute stock basis and debt basis, the tax effects of contributing property, of distributing property while the company runs and when it liquidates, and how income is split when a shareholder sells mid-year, and to review a basis schedule for errors. Tessa and Leo follow Cedar Ridge Landscaping, Inc., an S corporation owned 60% by Marisol Vega and 40% by Devin Shaw. Figures are for 2026.

In this chapter

1. Contributing property to an S corporation
2. Stock basis: the annual adjustments
3. Debt basis from shareholder loans
4. Distributions of cash and property
5. Liquidating an S corporation
6. When a shareholder sells mid-year
7. Reviewing a shareholder's basis schedule

This chapter has 7 lessons, 50 practice MCQs with explanations and 20 simulations, plus flashcards and a recall sheet.

What this chapter covers

• Stock and debt basis with noncash property and debt
• ordering rules
• AAA and prior C corporation E&P
• property distributions
• liquidations
• income after a sale of shares

Chapter 7: International tax basics · Chapter 9: Partnerships: partner basis, allocations and elections