Question

i need to explain and not too long answer i need short answer .

ELS, an S corporation, reported a business loss of $1,000,000. Ethan, ELS’s sole shareholder, is involved in ELS’s daily business activities and he reports $1,200,000 of taxable income from sources other than ELS. What must you know in order to determine how much, if any, of the $1,000,000 loss Ethan may deduct in the current year? Explain

Answer 1

Loss from speculative business cannot be set off from income other than speculative business. However non speculative loss can be set off from income from other sources, so in given question if business loss relates to non speculation activities then it can be set off from the income arising from other sources and if it relates to speculation activity business then it is required to be carried forward and can only be set off from speculation profits arising in future years.