Common use of Limitation on Losses and Deductions Clause in Contracts

Limitation on Losses and Deductions. The aggregate amount of losses and de- ductions taken into account by a shareholder under paragraph (b)(1) of this section cannot exceed the adjusted basis of the shareholder’s stock in the corporation determined at the close of the last day of the post-termination transition period. For this purpose, the adjusted basis of a shareholder’s stock in the corporation is determined at the close of the last day of the post-termi- nation transition period without re- gard to any reduction required under paragraph (b)(4) of this section. If a shareholder disposes of a share of stock prior to the close of the last day of the post-termination transition period, the adjusted basis of that share is its basis as of the close of the day of disposition. Any losses and deductions in excess of a shareholder’s adjusted stock basis are permanently disallowed. For purposes of section 1366(d)(3)(B) and this para- graph (b)(2), the basis of stock in a cor- poration acquired by gift is the basis of the stock that is used for purposes of determining loss under section 1015(a).