A calendar year C corporation reports a $41,000 NOL in 2019, but it elects S status for 2020 and generates an NOL of $30,000 in that year. At all times during 2020, the stock of the corporation was owned by the same 10 shareholders, each of whom owned 10% of the stock. Kris, one of the 10 shareholders, holds an S stock basis of $2,300 at the beginning of 2020. How much of the 2020 loss, if any, can she deduct?
A) $-0-
B) $2,300
C) $3,000
D) $7,100

Question

Quizplus · Accepted Answer

Kris can deduct up to her basis in the S corporation stock, which is $2,300. S corporation losses are passed through to shareholders and can only be deducted to the extent of the shareholder's basis in the stock and any debt owed to the shareholder by the corporation. Since Kris has a basis of $2,300, that is the maximum loss she can deduct for the year. The NOL from when the corporation was a C corporation does not affect her basis or the amount she can deduct.

A Calendar Year C Corporation Reports a $41,000 NOL in 2019