Question

Suppose that at the beginning of 2019 Jamaal's basis in his S corporation stock is $0, he has a $0 debt basis associated with a $16,000 loan he made to the S corporation, and he has a $11,000 suspended loss from the S corporation. In 2019, Jamaal contributed $14,000 to the S corporation, and the S corporation had ordinary income of $10,000. Assume that Jamaal owns 40 percent of the S corporation. How much net income or loss does Jamaal report this year from the S corporation?

Answer 1

-$7,000

Step-by-step explanation:

Net loss reported by Jamaal this year from the S corporation:

= Ordinary income - suspended loss from the S corporation

= (40 percent of the S corporation × Ordinary income) - suspended loss from the S corporation

= (40% × $10,000) - $11,000

= $4,000 - $11,000

= -$7,000

Jamaal may deduct the $11000 loss carryover against his debt basis,

which was increased by his $14,000 contribution,

and his $4,000 share of S corporation income.