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Scenario $3$: S$-$Corporation NOLs and Shareholder Basis

A shareholder has invested $$60,000$ in an S$-$Corporation.

The S$-$Corporation generates the following losses allocated to the shareholder:

Year $1$: $($$$40,000)$

Year $2$: $($$$35,000)$

Year $3$: $($$$20,000)$

Prior year NOL carryforwards: None

Shareholder also receives $$15,000$ in distributions from the S$-$Corp in Year $2.$

Wages: $$90,000($all years$)$

Interest & Dividend Income $($all years$)$: $$2,000$

Itemized Deductions $($all years$)$: $$25,000$

Questions:

Analyze how much of the S$-$Corp losses can be deducted each year, considering the shareholder's basis.

Calculate AGI, taxable income, and tax liability in each year.

How does the distribution in Year $2$ impact the basis calculation?