Boston Company, an electing S corporation, has an operating loss of $400,000 for the current year. Hank owns a 40% interest in the company and is a material participant. At the beginning of the year, Hank's adjusted basis in the stock is $30,000. During the year the company borrows $100,000 with a recourse note. How much of the loss can Hank deduct on his current-year income tax return?
A)$- 0 -
B)$ 30,000
C)$ 70,000
D)$160,000
E)$200,000

Question

Quizplus · Accepted Answer

Hank can deduct $30,000 of the loss, which is limited to his adjusted basis in the stock at the beginning of the year. The recourse loan increases the company's basis, but not Hank's individual basis in the S corporation for deducting the loss.

Boston Company, an Electing S Corporation, Has an Operating Loss