Suppose at the beginning of 2014, Jamaal\'s basis in his S corporation stock is
ID: 2592774 • Letter: S
Question
Suppose at the beginning of 2014, Jamaal's basis in his S corporation stock is $0, he has a $0 debt basis associated with a $10,000 loan he made to the S corporation and a $5,000 suspended loss from the S corporation. In 2014, Jamaal contributed $8,000 to the S corporation, and the S corporation had ordinary income of $4,000. Assume that Jamaal owns 40% of the S corporation. How much net income or loss does Jamaal report this year from the S corporation? A. $4,000 income. B. $1,600 income. C. $1,000 loss. D. $3,400 loss. E. None of these.
Explanation / Answer
Ordinary Income ($4,000 x 40%) $1,600
Less: Suspended loss $5,000
Income/(Loss) ($3,400)
Jamaal may deduct the $5,000 loss carryover against his debt basis, which was increased by his $8,000 contribution and his $1,600 share of S corporation income.
Option D. $3,400 loss is correct answer.