Suppose that at the beginning of 2020 Jamaal's basis in his S corporation stock was $27,000 and Jamaal has directly loaned the S corporation $10,000. During 2020, 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 percent of the S corporation?
A)$10,000
B)$27,000
C)$37,000
D)$40,000
E)None of the choices are correct.

Question

Quizplus · Accepted Answer

Jamaal can deduct $37,000 of the ordinary loss. This is because he can deduct losses up to the extent of his basis in the S corporation stock plus any direct loans he has made to the corporation. His stock basis is $27,000, and he has loaned the corporation $10,000, totaling $37,000. Since he owns 50% of the S corporation, he is allocated 50% of the $80,000 loss, which is $40,000. However, he can only deduct up to his basis and loan amount, which is $37,000.

Suppose That at the Beginning of 2020 Jamaal's Basis in His