Randall owns 800 shares in Fabrication, Inc., an S corporation in Moss Hill, Texas. In 2015, the basis in his stock is $30,000, before the adjustment for this year's losses. During 2015, Randall's share of the corporation's ordinary loss is $20,000, and his share of its capital loss is $15,000. How much can Randall deduct due to these losses?

Question

Quizplus · Accepted Answer

First, we must calculate Randall's basis in the stock after adjusting for this year's losses.

Starting Basis: $30,000 
Ordinary Loss: -$20,000 
Capital Loss: -$15,000 
Adjusted Basis: $30,000 - $20,000 - $15,000 = $-5,000

Since Randall's adjusted basis is negative, he cannot deduct any of the losses on his individual tax return. Therefore, the correct answer is C ("No deduction").

Randall Owns 800 Shares in Fabrication, Inc