Three years ago, Tammy paid $15 per share for 1,000 shares of the common stock o

Question

Three years ago, Tammy paid $15 per share for 1,000 shares of the common stock of Three Flags Amusement Parks.

This year, Tammy learned that Three Flags has filed for bankruptcy. The bankruptcy Judge declares that the creditors are entitled to 100% of the assets of Three Flags' assets and that the shareholders will get nothing.

What are the tax consequences to Tammy of Three Flags' bankruptcy?

$1,000 capital gain

$15,000 long-term capital loss

$15,000 ordinary loss

$0 gain or loss

$1,000 capital gain

$15,000 long-term capital loss

$15,000 ordinary loss

$0 gain or loss

Explanation / Answer

Total investment of the Tammy is 1000 Shares X $ 15 Per share = $ 15,000

And the period of the invetment is three years so this is a long tern capital investment.

Loss = Realized amount on sales - Investment

Loss = $ 0 - $ 15,000 = - $ 15,000

So there is long term capital loss of $ 15,000

Answer = Option 2 = $ 15,000 Long - Term Capital Loss

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