On January 1, 2018, Laura Wang contributed $30,000 cash in exchange for 30 shares of stock in Suki Inc., an S corporation. On May 12, Laura loaned $8,500 to Suki in exchange for a 5-year interest-bearing note. Laura's pro rata share of Suki's 2018 ordinary business loss was $34,100, and she received no cash distributions during the year. Assume the excess business loss limitation does not apply. Which of the following statements is accurate?

Question

Quizplus · Accepted Answer

Laura's share of the 2018 loss is $34,100, which she can deduct on her personal tax return. As an S corporation shareholder, Laura's basis in her stock and loan from Suki determines the amount of losses and deductions she can claim from Suki. Since Laura received no cash distributions during the year, her basis in the Suki stock and loan remains at their original levels. Therefore, her basis in the Suki stock is zero, and her basis in the Suki note is the original $8,500. When her basis in the Suki stock reaches zero, any additional losses will be suspended until she restores her basis. Therefore, on January 1, 2019, Laura's basis in her Suki stock is zero, and her basis in her Suki note is $4,400 ($8,500 basis - $4,100 loss deduction).

On January 1, 2018, Laura Wang Contributed $30,000 Cash in Exchange