I'm probably overthinking this one...
100% S Corp owner. Has basis at beginning of year of $100,000. Sells 50% of the S Corp stock on 7/1 for $120,000. No redemption, sale happened outside of the corp itself. The corporation had net income at the end of the year of $200,000
I know the basis used to calculate the gain on the sale of the stock is the basis immediately prior to the sale. But what exactly is considered the basis immediately before the sale? Does the income from the year of sale factor into the basis for the time he was 100% owner?
We are not doing a closing of the books election, income is being allocated pro-rata/days owned.
My though it to use the beginning of year basis (50% of $100,000), against the proceeds of $120,000, for a LT gain of $70,000.
But again, what does "immediately before the sale" mean? Should any of the income prior to 7/1 be allocated to the basis used in the gain calculation?
Thank you all in advance.