When Weepin\' Willie formed Hard Luck Inc.under § 351, he transferred property (

Question

When Weepin' Willie formed Hard Luck Inc.under § 351, he transferred property (basis: $26,000; FMV: $22,500) for § 1244 stock. Hard Luck provided divination services to help pessimists predict disasters, but failed to foresee that three years later it would go bankrupt and its stock becomes worthless. Willie, who is single (what a surprise), owned the stock as an investment. His deductible loss is:

a. $26,000 capital.
b. $22,500 ordinary and $3,500 capital.
c. $3,500 ordinary and $22,500 capital.
d. $26,000 ordinary.
E. None of the above.

Explanation / Answer

The correct option is C as per teh law the diffence is taken as ordinary $3,500 and the the capital $22,500 (FMV) is also taken.

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