On January 1 of this year (assume not a leap year), Anne bought 50% of a calendar year S corporation. Anne purchased the remaining 50% on July 1. Anne's adjusted basis in the stock is $277,000 before any basis adjustments are taken into account. For this year, the corporation had a net operating loss of $365,000. What is the amount of the corporation's loss that Anne can deduct on her current individual income tax return?
A)$0
B)$274,500
C)$273,500
D)$365,000

Question

Quizplus · Accepted Answer

Anne can deduct her share of the S corporation's loss up to her adjusted basis in the stock. She owned 50% of the corporation for the first half of the year and 100% for the second half, averaging to 75% ownership for the year. Therefore, she can deduct 75% of the $365,000 loss, which is $273,750. However, since her basis is $277,000, she can deduct up to $274,500, which is the maximum allowable deduction based on her basis.

On January 1 of This Year (Assume Not a Leap