Bill and Guilda each own 50 percent of the stock of Radiata Corporation, an S corporation. Guilda's basis in her stock is $21,000. On May 26, 2018, Bill sells his stock, with a basis of $40,000, to Loraine for $50,000. For the 2018 tax year, Radiata Corporation has a loss of $104,000.

Round your final answers to the nearest dollar. Use a 365-day year in your computations.

a. Calculate the amount of the corporation's loss that may be deducted by Bill on his 2018 tax return.

$

b. Calculate the amount of the corporation's loss that may be deducted by Guilda on her 2018 tax return.

$

c. Calculate the amount of the corporation's loss that may be deducted by Loraine on her 2018 tax return.

$

a) $20,800

b) $21,000

c) $31,200

Explanation:

a) Bill held his stock from January 1 to May 26. The loss accrued to him should only be for those days.

The number of days are,

= 31 (January) + 28 ( February) + 31 + 30 + 26

= 146 days.

50% of the losses accrued to him for 146 days out of 365.

= 104,000 * 0.5 * 146/365

= $20,800

b) The maximum amount of loss that Guilda can claim on her 2018 tax return as a current shareholder is equal to her current basis in the stock. That basis is $21,000 so Guilda can only deduct $21,000 from her 2018 tax return.

c) Seeing as Lorraine acquired the stock from Bill on May 26, the amount of loss due to her will be for the period she held the stock.

She held the stock for,

= 365 - 146

= 219 days

At 50% ownership, her losses will be,

= 104,000 * 0.5 * 219/365

= $31,200

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