Suppose at the beginning of 2014, Jamaal's basis in his S corporation stock was $27,000 and that Jamaal has loaned the S corporation $10,000. During 2014, 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 basis at the end of the year can be calculated as follows:

Beginning basis: $27,000 
Plus: Share of the S corporation loss: $40,000 (50% of $80,000) 
Minus: Loan to S corporation: $10,000 
End of year basis: $57,000

Since Jamaal's basis is greater than zero at the end of the year, he can deduct the entire share of the S corporation loss on his personal tax return. Therefore, his deductible loss is $37,000 (50% of $80,000).

Suppose at the Beginning of 2014, Jamaal's Basis in His