A taxpayer owns 50% of the stock of an S corporation and materially participated in the corporation's activities. At the beginning of the year, the taxpayer had an adjusted basis in the stock of $25,000 and made a loan to the corporation of $13,000. During the year, $3,000 of the loan was repaid, and the taxpayer's share of the corporation's loss for the year was $40,000. What is the amount of the loss that may be deducted on the taxpayer's tax return?

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11-10-2019
Business

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A taxpayer owns 50% of the stock of an S corporation and materially participated in the corporation's activities. At the beginning of the year, the taxpayer had an adjusted basis in the stock of $25,000 and made a loan to the corporation of $13,000. During the year, $3,000 of the loan was repaid, and the taxpayer's share of the corporation's loss for the year was $40,000. What is the amount of the loss that may be deducted on the taxpayer's tax return?

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andromache andromache · Answer 1 · 2019-10-15T12:29:05+02:00

Answer:

The amount of the loss that may be deducted on the taxpayer's tax return is $35,000

Explanation:

The computation of the loss which is deducted is shown below:

Loss = Adjusted basis of stock + loan made to the corporation - repaid amount of loan

= $25,000 + $13,000 - $3,000

= $35,000

The corporation loss should not be taken in the computation part. Hence, we ignored it. For the accurate value, we added the loan given amount and deducted the repaid amount of loan to the adjusted basis of stock