What does debt basis mean on the CPA exam?
Debt basis. An S corporation shareholder's basis in loans they personally made to the corporation. Losses can reduce it once stock basis reaches zero, and it must be restored before stock basis is.
Defined against Sec. 1367(b)(2).
Which CPA exam sections use debt basis?
Debt basis appears in the REG section of the CPA exam.
What is the difference between debt basis and stock basis?
An S corporation shareholder deducts losses against stock basis first, then against the basis of debt the corporation owes them DIRECTLY. A guarantee creates no debt basis until the shareholder actually pays, which is the sharpest break from partnership law under Sec. 752(a). Debt basis is restored before stock basis, so repaying a loan whose basis is still depressed produces income. (IRC Sec. 1366 and 1367)
Related terms
- stock basis: A shareholder's investment in S corporation stock for tax purposes.
- S corporation: A corporation that elects to be taxed like a partnership, so profit is taxed once in the shareholders' hands.
- carryover basis: Basis that follows the property from the previous owner instead of resetting to what was paid.
- inside basis: The partnership's own tax basis in the assets it holds.
- outside basis: A partner's tax basis in the partnership interest itself.
- adjusted basis: What the taxpayer has invested in property for tax purposes: cost, plus improvements, less depreciation taken.