Question

D loaned $250,000 to a small business corporation four years ago. By the end of the...

D loaned $250,000 to a small business corporation four years ago. By the end of the current year, it was established none of the loan would be repaid due to financial difficulty. D claimed a capital gains deduction of $100,000 last year. What is the maximum allowable business investment loss (ABIL) for the current year?

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Answer #1

As per the applicable rules, the maximum allowable business investment loss is limited to 50% of the actual loss suffered subject to adjustment for any capital gains deduction claimed in previous year. The maximum allowable business investment loss (ABIL) for the current year is determined as follows:

Business Investment Loss (250,000*50%) 125,000
Less Capital Gains Deduction 100,000
Maximum Allowable Business Investment Loss (ABIL) for the Current Year $25,000

Answer is $25,000.

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