Suppose at the beginning of 2017, Jamaal's basis in his S corporation stock was $27,000 and that Jamaal has directly loaned the S corporation $10,000. During 2017, 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% of the S corporation?

Question

Quizplus · Accepted Answer

Jamaal's share of the loss for 2017 would be $40,000 ($80,000 x 50%). However, since Jamaal's basis is only $27,000, he would only be able to deduct up to that amount. Since Jamaal also directly loaned the S corporation $10,000, his basis is increased to $37,000. Therefore, Jamaal can deduct up to $37,000 of the $40,000 loss, leaving $3,000 suspended until he has sufficient basis to take the deduction.

Suppose at the Beginning of 2017, Jamaal's Basis in His