Question

On December 31, Year 1, Mr. and Mrs. Wise purchased 50% of Cobra’s only class of stock outstanding for $300,000. Cobra is an electing S corporation. On November 30, Year 2, they purchased the other 50% of Cobra’s stock for $300,000. For the year, Cobra incurred an ordinary loss of $474,500. How much of the loss can Mr. and Mrs. Wise deduct on their individual income tax return for the year

Answer 1

Answer:

$257400

Explanation:

Under Sec. 1366(a) and Sec. 1377(a), a pro rata share is the tax payers hare of loss determined on a per-day and then a per-share basis.   Cobra shareholder includes his or her pro rata share of loss from the cobra.

The ordinary loss for the whole year was  $474,500, Therefore the loss per day was $1300 per day ( $474,500 ÷ 365 days).

Since Mr. and Mrs. Wise owned 50% of the stock for the full year and the other 50% for 31 days, their share of loss =  [ $474,500/2 + (31 days × $1300 × 50%)] = $237250 + $20150 = $257400