Stephanie owns a 25% interest in a qualifying S corporation. Stephanie's basis in the stock was $40,000 at the beginning of the year. Stephanie made no capital contributions and received no distributions during the year. Stephanie loaned the S corporation $10,000 this year. The S corporation incurred a $240,000 ordinary loss this year. Stephanie's deduction and carryover of the unused loss are
A)$30,000 and $30,000.
B)$40,000 and $20,000.
C)$50,000 and $10,000.
D)$60,000 and $0.

Question

Quizplus · Accepted Answer

Stephanie's share of the loss is $60,000 (25% x $240,000). Since she has a basis of $40,000 in the stock and she loaned the S corporation $10,000, her total basis is $50,000. Therefore, she can deduct the full $50,000 of her losses and also carry over the remaining $10,000 of the unused loss to future tax years.

Stephanie Owns a 25% Interest in a Qualifying S Corporation