Are suspended losses on S corporation shares deductible?

October 19, 2006

Date:  Wed, 20 Sep 2006
From:  Ron

Question,

Are suspended losses on S corporation shares deductible upon sale or if the stock becomes worthless?

Losses were suspended due to lack of basis and at risk rules.

Ron

Answer

Date:  Wed, 04 Oct 2006

Hello Ron,

Suspended losses from S corporations due to lack of basis are not like suspended passive activity losses. They are lost when the shares are sold or if the stock becomes worthless.

The at risk rules are so closely related to the basis rules that I hesitate to tell you at risk suspended losses can be used to offset gains from the sale of S corporation stock. The basis limitation "trumps" the at risk limitation.

The purpose of the basis limitation is to limit the losses claimed by an S corporation shareholder to the amount invested in the corporation, including reinvested earnings.

Good luck!
Mike Gray

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