Wilbur owns a 25% interest in the Talking Horse Corporation, which is organized as an S corporation. His basis in the property is $15,000. For the year, Talking Horse reports an operating loss of $28,000 and a capital loss of $6,000. Wilbur’s adjusted gross income is $72,000.
a. What effect would these losses have on Wilbur’s adjusted gross income if he does not materially participate in Talking Horse? Explain.
b. What effect would these losses have on Wilbur’s adjusted gross income if he materially participates in Talking Horse? Explain.