I became unemployed in 2010. I had a lump sum payout when I left. So, my wife opened an s corporation busines. I loaned her the capital to open the business. Can I deduct the amount of the loan. I understand that the interest paid back from the company would be income as it is paid but is there a way for me to reduce my income for this year by the amount of the investment.

“Can I deduct the amount of the loan.”--->if the S copr takes losses, then the loss is treated as a short-term capital loss on Schedule D. You can use this loss to offset other capital gains, and to the extent the loss is not used you can deduct $3000 each year and carry over the rest indefinitely.I am not sure if your are a shareholder of the S corp.; however, you, I assume that you as a shareholder, may advance money to the S-Corporation as a loan.You making loans to your S-Corporation may take a tax deduction in the current year for losses in excess of your stock basis, but only to the extent you have loan basis.Your loan ajusted basis cannot be below zero. Any excess negative basis of the loan is treated as a non-deductible loss. This excess loss is a suspended loss and carries over to future years indefinitely. The suspended loss may be deducted in any future tax year during which you, as a shareholder, have restored your loan basis or stock basis. S-Corporation shareholders are subject to the passive activity rules. These rules govern to what extent an S-Corporation loss is currently deductible by a shareholder.
“I understand that the interest paid back from the company would be income as it is paid but is there a way for me to reduce my income for this year by the amount of the investment.”---> I guess your spouse that owns the S corp. can deduct the interest expense on 1120 S line 13 though your spouse has the option (barring any rules that might limit the deduction) to deducting said interest on her return on 1040 schedule A line 14, an d you report it on your return as interest income on 1040 line 8a or on Sch B( if over $1,500 as far as I know).However, REMEMBER; if the note between you, a lender, and the S- corporation doesn't provide for an interest rate at least equal to the applicable federal rate,AFR, then you will need to impute (calculate) what the interest would be. At year end, the S corp needs to document the loan balance, issue a 1099INT for the interest paid to you. As far as I know, the is the Tax law required by the IRS.
If (the loan) it is capital contribution, then interest is NOT paid on capital contribution as it is just that, capital contribution. Repayments are a return of capital and reduce stock basis, while contributions increase stock basis. Loans are loans, increasing basis only to the extent that they are needed to take losses. At that point, repayments are capital gain items as a percentage of stock basis vs loan basis.