as i see it you are supplying incomplete data
at the end of year 1, you have a tax basis/at-risk amount in the S-corp of $1.1M
The S corp has real estate with a tax basis of $1M and stock with a tax basis of $.1 M
you say that in year 2 the real estate loses $1.1M
how is this possible? the bookkeeping entries, in summary, would be a debit to expenses of $1.1M but what is credited to balance the books? even if you credit the Real estate for $.1M for depreciation that leaves $1M unaccounted for. so there is a piece that is missing. put another way, if the depreciation of the real estate is $ .1M that leaves a cash loss of $1M. where did that cash come from?
even worse is year 3 where there is another $1M loss
how is this possible? say the real estate is reduced another $.1M for depreciation. the bookkeeping entry, in summary would be a debit to expenses of $1M, a credit to accumulated depreciation of $.1M but where's the other $.9M credit, in other words how is this $.9M loss funded?
go see a tax pro where they can look over the actual transactions
