Problem 12-41 (LO. 7, 8)

Jeff, a 52% owner of an S corporation, has a stock basis of zero at the beginning of the year. Jeff's basis in a $10,000 loan made to the corporation and evidenced by a corporate note has been reduced to zero by pass-through losses. During the year, Jeff's net share of the corporate taxable income is $11,000. At the end of the year, the corporation repays the loan principal to Jeff.

What are the tax effects for Jeff?

If an amount is zero, enter "0".

Because the loan basis is back to the original amount , the repayment of the loan principal to Jeff results in $ of taxable income.