Question

A shareholder purchases 30 percent of the stock of an S corporation two-thirds of the way through the year for $20,000. The S corporation incurs an operating loss of $300,000 for the year. what the amount that the shareholder may deduct on his personal income tax return, assuming the at-risk and passive activity rules do not apply?

Answer 1

Explained

Step-by-step explanation:

In most cases, the shareholder will receive a K-1 reporting a loss of approximately $30,000.

($300,000×122/365×30%).

Regardless of what the K-1 says, the shareholder is subject to at-risk and passive activity loss rules and will only be able to deduct $20,000 on his return. The balance will be carried forward.