Question:

Sally and Bob, unmarried taxpayers, each owned 50% of Lostalot, Inc., an S corporation. The corporation had a $50,000 operating loss for the tax year ending December 31, 2002. As of 12-31-01, Bob's basis in his stock was $15,000 and Sally's was $5,000. In the 2002 tax year, Sally mortgaged her home for $25,000 and loaned the money to the corporation. Though not personally liable, Bob told her not to worry and that if anything happened, he could help pay the mortgage debt. Evaluate the amount of allowable loss deduction each shareholder would be able to recognize on their individual 2002 tax returns.

Bob: $25,000 and Sally $25,000.

Bob: $15,000 and Sally $5,000.

Bob: $15,000 and Sally $30,000.

Bob: $15,000 and Sally $25,000.