Final answer:
The tax basis in S corporations is important for determining the deductibility of losses. In 2018, none of the $25,000 loss allocated to Parker clears the tax basis hurdle. Parker's stock basis at the end of 2018 is $14,000 and remains the same at the end of 2019. His debt basis does not change throughout the period.
Step-by-step explanation:
To determine the answers to the questions regarding Parker's basis in Johnson Corp., we need to understand the concept of tax basis in S corporations. Tax basis is the owner's investment in the corporation and is used to determine the tax consequences of certain transactions.
a. How much of the $25,000 ordinary loss allocated to Parker clears the tax basis hurdle for deductibility in 2018?
To deduct losses from an S corporation, a shareholder's basis must be at least equal to the share of the loss. In this case, Parker's beginning basis is $14,000, and the loss allocated to him is $25,000. Since his basis is less than the loss, none of the loss clears the tax basis hurdle for deductibility in 2018.
b. What is Parker's stock and debt basis at the end of 2018?
Parker's stock basis at the end of 2018 is calculated by adding his beginning basis with his share of the income and subtracting any distributions or losses. His stock basis is $14,000 + $0 (no income allocated) - $0 (no distributions) - $0 (no loss allocated) = $14,000. His debt basis remains the same as he did not receive any loans or assume any debt.
c. What is Parker's stock and debt basis at the end of 2019?
Parker's stock basis at the end of 2019 is calculated in the same way as in part b. His stock basis is $14,000 + $8,000 (his share of the income) - $0 (no distributions) - $0 (no loss allocated) = $22,000. His debt basis remains the same as he did not receive any loans or assume any debt.