Suppose that at the beginning of 2019 Jamaal's basis in his S corporation stock was $27,000 and Jamaal has directly loaned the S corporation $10,000.During 2019, the S corporation reported an $80,000 ordinary business loss and no separately stated items.How much of the ordinary loss is deductible by Jamaal if he owns 50 percent of the S corporation?

Question

Quizplus · Accepted Answer

First, we need to allocate the loss between Jamaal and the other shareholder(s). Since Jamaal owns 50% of the S corporation, he is allocated 50% of the loss, which is $40,000 ($80,000 x 50%).

However, we also need to take into account Jamaal's basis in the S corporation stock and any loans he has made to the S corporation. Jamaal's basis is $27,000 and he has directly loaned the S corporation $10,000, for a total basis of $37,000 ($27,000 + $10,000).

Since Jamaal's allocation of the loss ($40,000) exceeds his basis in the S corporation stock and loans ($37,000), he can deduct up to the full amount of his basis ($37,000). Therefore, the answer is (C) $37,000.

Suppose That at the Beginning of 2019 Jamaal's Basis in His