Chris owns one-third of Coastal Corporation’s stock, and he materially participates in the business. Coastal, an S corporation, uses the calendar year as its tax year. On January 1 of the current year, Chris’s stock basis is $25,000, and he has a $10,000 loan outstanding to the corporation. In the current year, Coastal reports a $180,000 ordinary loss.
a. What amount of loss can Chris deduct on his individual tax return?
b. What is Chris’s basis in his stock and debt at December 31?
c. How much of the loss (if any) carries over to subsequent years?
d. If Coastal reports ordinary income of $90,000 during the next year, what is Chris’s basis in his stock and debt at the end of next year?