I understand the argument that you made, that is you cannot deduct losses in excess of basis! Ok, I think I am going to have substantial losses in my S corporation, and of course we have substantial assets in the S corporations so getting a line of credit to cover those losses should not be a problem.

Can you please advise me whether the line of credit guaranteed by me of course would allow me to generate the additional basis? If not, can you advise how I can increase my basis in the S corporations to allow deductibility of the losses in my 100% owned S corporation. Thanks a lot..

If you expect the S corporation to incur substantial losses in excess of your basis, then these losses would not be deductible on your personal tax return.

If the S corporation obtains a line of credit that is co-signed or guaranteed by you, to support the losses or cash flow, this method does not increase the taxpayers basis per IRS rules.

The best way to increase Basis in an S corporation is obtain a loan personally by the shareholder and then loan this money to the S Corporation. This is referred to as a Back-Back Loan to the S corporation.

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