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.After any loss deductions this year, what is Jamaal's stock and debt basis at the end of the year if Jamaal is a 50 percent shareholder of the S corporation?

Question

Quizplus · Accepted Answer

Jamaal's initial stock basis is $27,000. As a 50% shareholder, he can deduct $40,000 (50% of $80,000) of the S corporation's loss against his stock basis, reducing it to $0 because a shareholder's stock basis cannot go below zero. The remaining $40,000 loss can then be applied against his $10,000 debt basis, reducing the debt basis to $0. The loss in excess of his stock and debt basis ($30,000) is suspended and carried forward. Therefore, none of the provided choices accurately reflect Jamaal's end-of-year stock and debt basis.

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