Randall owns 800 shares in Fabrication, Inc., an S corporation in Moss Hill, Texas. For this tax year, the basis in his stock is $30,000, before the adjustment for this year's losses. 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 need to calculate Randall's adjusted basis in his stock. Since his basis before the adjustment for this year's losses was $30,000, and he had a share of the corporation's losses this year, we need to subtract his share of those losses from his basis:

Adjusted basis = $30,000 - $20,000 (ordinary loss) - $15,000 (capital loss) = $-5,000

Since his adjusted basis is negative, Randall has a suspended loss of $5,000 that he can carry forward to future years.

For this year, however, he can deduct up to his adjusted basis in the S corporation stock. Since his adjusted basis is negative, he cannot deduct any losses.

Therefore, the correct answer is C, which states that Randall cannot deduct any losses.

Randall Owns 800 Shares in Fabrication, Inc