Suppose that at the beginning of 2020 Jamaal's basis in his S corporation stock was $28,000 and Jamaal has directly loaned the S corporation $9,990. During 2020, the S corporation reported an $80,100 ordinary business loss and no separately stated items. How much of the ordinary loss is deductible by Jamaal if he owns 50percent of the S corporation?

Question

Quizplus · Accepted Answer

Jamaal's basis in his S corporation stock at the end of 2020 is equal to his beginning basis of $28,000 plus his share of the S corporation's losses ($80,100 x 50% = $40,050), plus the direct loan he made to the S corporation ($9,990).

Therefore, Jamaal's basis in his S corporation stock at the end of 2020 is $78,040 ($28,000 + $40,050 + $9,990).

Since Jamaal's basis is greater than the S corporation's losses, he can deduct the entire $40,050 share of the ordinary business loss on his personal tax return, subject to any other limitations.

So the correct answer is C) $37,990.

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