On January 1, 2012, 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 2012 ordinary business loss was $34,100, and she received no cash distributions during the year. Which of the following statements is accurate?

Question

Quizplus · Accepted Answer

Laura's pro rata share of Suki's loss is $34,100, which is greater than her basis in Suki's stock and note combined ($30,000 + $8,500 = $38,500). Therefore, she can only deduct up to $38,500 of the loss. Since her basis in the stock is zero after deducting her share of the loss, her remaining basis in the note must be $4,400 ($38,500 - $34,100 = $4,400).

On January 1, 2012, Laura Wang Contributed $30,000 Cash in Exchange