S Corp Basis & NOL

[Maria]

I posted a similar message a few days ago but no one answered. I only went through two tax seasons and worked for only one tax firm.

Here is my question, if an S corp shareholder has deducted all equity basis, can he/she deduct loan basis. If he has taken deduction of loan basis, when the loan is repaid, he has to recongnize income? In general, what do people do, do they deduct loan basis?

Net operating loss election, in general, do people make an election or they leave it open so they have the option to carryback or forward, or if a NOL is present, an election must be made on the current year 1040?

Thank you very much for your help.

[Bees Knees]

I answered your NOL question in the other thread.

As to deducting loan basis - you don't have a choice. You can't just decide not to deduct something because you think it will be better to deduct it in the future. If you have basis, you deduct it in the year you incurred the loss.

[Armando Beaujolais]

I posted a similar message a few days ago but no one answered. I only went through two tax seasons and worked for only one tax firm.

Here is my question, if an S corp shareholder has deducted all equity basis, can he/she deduct loan basis. If he has taken deduction of loan basis, when the loan is repaid, he has to recongnize income? In general, what do people do, do they deduct loan basis?

Net operating loss election, in general, do people make an election or they leave it open so they have the option to carryback or forward, or if a NOL is present, an election must be made on the current year 1040?

Thank you very much for your help.

Revenue Ruling 64-162

"Where a shareholder-creditor of an electing small business corporation, as defined in section 1371 of the Internal Revenue Code of 1954, has reduced his basis in the corporation's note by the amount by which his share of the corporation's net operating loss sustained in a prior year exceeded his basis in the corporation's stock, the repayment of the note (exclusive of interest) is considered to be an amount received in exchange for a capital asset, where the note is a capital asset in the shareholder's hands. Installments received in retirement of the note must be allocated in part to a return of the shareholder's basis in the loan and in part to income."

Once loan basis is at zero, subsequent repayments result in capital gain.

[Maria]

Thank you very much!

Thanks a lot. It is so helpful. I have been reading notes on this website. I learned a lot.

[dsi]

Revenue Ruling 64-162

"Where a shareholder-creditor of an electing small business corporation, as defined in section 1371 of the Internal Revenue Code of 1954, has reduced his basis in the corporation's note by the amount by which his share of the corporation's net operating loss sustained in a prior year exceeded his basis in the corporation's stock, the repayment of the note (exclusive of interest) is considered to be an amount received in exchange for a capital asset, where the note is a capital asset in the shareholder's hands. Installments received in retirement of the note must be allocated in part to a return of the shareholder's basis in the loan and in part to income."

Once loan basis is at zero, subsequent repayments result in capital gain.

So, where on the tax return does one report this CG? That is, where and how?

[Armando Beaujolais]

So, where on the tax return does one report this CG? That is, where and how?

Distributions in excess of basis are treated as a sale of property. Capital gain, Schedule D.