On January 1, 2013, 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 2013 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 the ordinary business loss is $34,100, which she can deduct on her personal tax return for 2013. Since she received no cash distributions, her basis in the Suki stock remains at $30,000. However, the loan she made to Suki increases her basis in the S corporation by the amount of the loan, so her basis in the Suki note is $8,500. Therefore, on January 1, 2014, the basis in her Suki stock is zero, and the basis in her Suki note is $4,400 ($30,000 - $34,100 + $8,500).

On January 1, 2013, Laura Wang Contributed $30,000 Cash in Exchange