September 3mgmt127b

September 3mgmt127b - Par tner 10% Par tnership $(60) of...

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Unformatted text preview: Par tner 10% Par tnership $(60) of income September 3, 2008 MG MT 127B More S Corporations People not only pay money for stock, but they will sometimes loan a company money as well. When you make a loan to a company, you have a basis in the loan, so that when you get paid back, you have no income. When you have losses, you flow them through up to whatever your basis is. Pg. 77 course reader Case 1: Your share of the corporations loss is $(6) You have a basis of $20 in your stock You also have a $10 basis in a loan you made to the company Income: $(6) Basis in Stock: $20 - $6 = $14 Basis in Loan = $10 Because there is a loss, we reduce our basis in the stock by $6 Case 2: What if the loss exceeds our basis in the stock? Your share of the corporations loss is $(26) You have a basis of $20 in your stock You have a $10 basis in a loan you made to the company Income: $(26) Basis in Stock: $20 - $20 = $0 Basis in Loan: $10 - $6 = $4 Lower your basis in the stock first, and then use the overflow to lower your basis in the loan. We avoid lowering our basis in the loan because when we adjust it downwards, and eventually receive proceeds, income is created. You are eventually going to receive proceeds of $10 because this is what you are owed. However, you have reduced your basis to $4, meaning when you get the $10, you have $6 of income. Under normal circumstances, making a loan to accompany is considered to be like buying a bond from the company. Therefore, when you have a gain on a loan, it is considered a capital gain. However, what if loans are considered inventory. If Bank of America collects However, what if loans are considered inventory....
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September 3mgmt127b - Par tner 10% Par tnership $(60) of...

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