On January 1, 2015, 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 2015 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 can deduct her pro rata share of the business loss, which is $34,100, in 2015. Since she did not receive any cash distributions during the year, her basis in her Suki stock and note does not change. However, since the loss exceeds her basis in the Suki stock, her basis in the stock is reduced to zero, and the excess loss of $3,700 ($34,100 - $30,000) is suspended and carried forward to future years. Her basis in the Suki note remains at $8,500, so on January 1, 2016, her basis in the Suki stock is zero and her basis in the Suki note is $4,400 ($8,500 - $4,100 suspended loss).

On January 1, 2015, Laura Wang Contributed $30,000 Cash in Exchange