On January 1, Bobby and Alice own equally all of the stock of an electing S corporation called Prairie Dirt Delight.The dirt company has a $60,000 loss for a non-leap year.On the 200th day of the year, Bobby sells his one-half of the stock to his son, Saul.How much of the $60,000 loss, if any, is allocated to Bobby?

Question

Quizplus · Accepted Answer

Since Bobby sold his one-half of the stock on the 200th day of the year, he is considered to have owned his share of the corporation for 200/365 (approximately 54.8%) of the year. Therefore, his share of the loss for the year is 54.8% of $60,000, which is $32,877 rounded to the nearest dollar. However, since Bobby sold his share before the end of the year, he is not allowed to deduct any of the loss on his tax return. So the loss is allocated entirely to Alice, and Bobby has no tax benefit from it. Therefore, the correct answer is B) $13,562, which is Alice's share of the loss.

On January 1, Bobby and Alice Own Equally All of the Stock