Question

Jurgen's deduction from his share of S corporation loss is limited by his basis. One way Jurgen could try and increase his loss deduction is to:

1) Increase his basis in the S corporation
2) Decrease his basis in the S corporation
3) Ignore the basis limitation and claim the full loss deduction
4) Transfer his basis to another shareholder

Answer 1

Jurgen cannot transfer his basis to another shareholder to increase his loss deduction in an S corporation. His deductible losses are limited to his basis, which he can increase by contributing additional capital or making a loan to the corporation.

Step-by-step explanation:

The student's question touches on S corporation loss limitations and how shareholders like Jurgen can increase their loss deductions. The deductibility of losses for S corporation shareholders, such as Jurgen, is limited to their basis in the corporation.

A shareholder's basis is generally the amount of capital they have invested in the S corporation. As per the information provided, shareholder liability is limited to this basis. Jurgen cannot directly transfer his basis to another shareholder to increase his own loss deduction potential. However, he can look at other methods to increase his basis, such as contributing additional capital to the S corporation or loaning money to it. These actions would give him a higher basis, allowing for more loss to be deducted.

Additionally, the S corporation has the ability to raise/borrow money, which can also be used to enhance the operations of the business, thereby potentially increasing shareholder basis if the funds are structured as an increase in stock basis or a shareholder loan to the corporation.