Answer:
a. $15,000
b. $10,000 & $3,000
c. $3,000
Explanation:
a. The amount of loss deducted in a year will be equal to the stock basis in the company.
The excess amount of loss will be carry to the future years and deducted, if there is conditional stock basis in the company.
The amount is Jessica allowed to deduct in year 1: ($45,000 x 1/3) = $15,000
b. Her stock and debt bases in the corporation at the end of year 1:
=> Stock basis at the end of year 1: $10,000 - $10,000 = 0
=> Remaining amount of loss: $15,000 - $10,000 = $5,000 => Remaining loss: $5,000 - $3,000 = $2,000
So, Jessica has a suspended loss of $2,000 at the end of year 1
c. The profit is $12,000
Share of J: $12,000 x 1/3 = $4,000
Out of this $4,000, the $3,000 (one-third) will be its debt basis and $1,000 will be stock basis.
The amount of $2,000 loss will first be deducted from the stock basis and then from the debt basis.
