Part 2 S Corporations question: stock basis at year end

Part 2S Corporations

Raj's S corporation stock basis was $20,000 on January 1, 2025. His K-1 shows ordinary income of $15,000, tax-exempt interest of $2,000 and nondeductible expenses of $1,000; he received $25,000 of distributions. What is his stock basis at year end?

A $9,000
B $11,000
C $12,000
D $36,000

Show the answer and explanation

Answer: B. $11,000

Basis rises for ordinary income ($15,000) and tax-exempt income ($2,000), then falls for distributions ($25,000) and nondeductible expenses ($1,000): $20,000 + $17,000 - $25,000 - $1,000 = $11,000. Source: IRC 1367(a); Form 7203 instructions (2025). Tax year: 2025 (law as of 31 Dec 2025).

Common mistake

Leaving tax-exempt income out of basis.

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Original study material mapped to the public IRS SEE content outlines; not a real exam question.Not affiliated with or endorsed by the IRS or PSI. Verify figures and rules against current guidance before relying on them.