Texts: King Corporation, an electing S corporation, is 100% owned by Crystal. On January 1 of the current year, her adjusted basis in the King stock is $30,000. During the year, King reports an ordinary loss of $30,000, tax-exempt income from municipal bonds of $15,000, dividend income from domestic corporations of $5,000, a long-term capital loss of $20,000, and a short-term capital loss of $30,000. How much of the ordinary loss can Crystal deduct? a) 0 b) 18,750 c) 30,000 d) 50,000 Can you please let me know if the following solution is correct?
BOY (Beginning of Year) stock basis: $30,000 + dividends: $5,000 + tax-exempt income: $15,000 - ordinary loss: $30,000 - LTCL (Long-Term Capital Loss): $20,000 = $0
At the end of the year, the stock basis is $0.
Of the $20,000 STCL (Short-Term Capital Loss), the shareholder can deduct $3,000 on her personal tax return.
As for the ordinary income, none of it can be deducted since her basis absorbed the ordinary loss.