Bob and Steve form S corporation with Bob contributing land with a basis of $1,000 and fair market value of $4,000 in exchange for 40% of the stock and Steve contributing cash of $6,000 in exchange for 60% of the stock. They properly make the election under subchapter S of the Code to tax the corporation as an S corporation. During year 1 of operations, the corporation earns $10,000 of net profit, which consists of net ordinary income of $8,000 plus $2,000 of capital gain. During the year, the corporation distributes of $6,000 to shareholders. What is Bob’s adjusted basis in his stock of S corporation at the end of year 1?

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Step 1 Calculating as corporation shareholder basis Basis is increased by shareholders share ... View the full answer