Suppose at the beginning of 2016, Jamaal's basis in his S corporation stock was $27,000 and that Jamaal has loaned the S corporation $10,000. During 2016, the S corporation reported an $80,000 ordinary business loss and no separately stated items. How much of the ordinary loss is deductible by Jamaal if he owns 50% of the S corporation?
A) $10,000.
B) $27,000.
C) $37,000.
D)$40,000.
E)None of these

Question

Quizplus · Accepted Answer

Jamaal's basis in the S corporation stock was $27,000, and he loaned the S corporation an additional $10,000, so his total basis is $37,000 ($27,000 + $10,000). Since he owns 50% of the S corporation, his share of the ordinary business loss is $40,000 ($80,000 x 50%). However, Jamaal's basis is less than his share of the loss, so he can only deduct up to his basis amount of $37,000. Therefore, $37,000 of the ordinary business loss is deductible by Jamaal.

Suppose at the Beginning of 2016, Jamaal's Basis in His