Randall owns 800 shares in Fabrication, Inc., an S corporation in Moss Hill, Texas. In 2011, his basis in his stock is $30,000, before the adjustment for this year's losses. During 2011, Randall's share of the corporation's ordinary loss is $20,000 and his share of its capital loss is $15,000. How much can Randall deduct due to these losses?

Question

Quizplus · Accepted Answer

First, we need to adjust Randall's basis in his stock for this year's losses: 
30,000 - 20,000 (ordinary loss) - 15,000 (capital loss) = $-5,000

Since Randall's basis is negative, he cannot deduct any of the losses on his personal tax return in 2011. However, he can carry forward the losses to future years and offset any future gains from the S corporation.

The correct answer is therefore (C), which is the closest to the correct amount of the ordinary and capital loss Randall experienced.

Randall Owns 800 Shares in Fabrication, Inc