Charles owns a 25 percent interest in Cal Corporation, an S corporation. The corporation has run into some difficulties recently and Charles loaned it $10,000. At the beginning of the year, Charles’s basis in his stock was $16,000.
What is Charles’s basis in his stock and debt at the end of the year if the corporation reports losses of $60,000?
What is Charles’s basis in his stock and debt at the end of the year if the corporation reports losses of $90,000?
What is Charles’s basis in his stock and debt at the end of the year if the corporation reports losses of $120,000?
given:
| charles interest | 25% |
| loan | 10000$ |
| basis in stock | 16000$ |
| loss of 60000$ | ||
| charles share of loss | 60000*25% | 15000$ |
| basis in his stock | 16000-15000 | 1000$ |
| basis in his debt | remains same | 10000$ |
| loss of 90000$ | ||
| charles share of loss | 90000*25% | 22500$ |
| basis in his stock | 16000-16000 | 0$ |
| basis in his debt | 10000-6500 | 3500$ |
| note: basis in his stock is reduced to 0$ by 16000$of loss and the remaining is deducted from 10000$, reducing his basis of debt to 3500$ | ||
| loss of 120000$ | ||
| charles share of loss | 120000*25% | 30000$ |
| basis in his stock | 16000-16000 | 0$ |
| basis in his debt | 10000-10000 | 0$ |
| note: remaining loss of 4000$ is suspended as it can't be deducted unless and until there is stock or debt basis again. | ||
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