Ralph and Yolanda purchased 20% of the initial offering of Major Corporation com
ID: 341430 • Letter: R
Question
Ralph and Yolanda purchased 20% of the initial offering of Major Corporation common stock for $150,000. Major Corporation is a qualifying small business corporation and the stock qualifies as Sec. 1244 stock. Ten months later, Major Corporation files for bankruptcy and the shareholders are notified that the stock is worthless. Ralph and Yolanda, who are married and file a joint return, have a O A. 0 B. 0 C. ( D. $100,000 ordinary loss; $50,000 ordinary loss carryforward $150,000 ordinary loss. $100,000 ordinary loss, $50,000 capital loss. $150,000 capital loss.Explanation / Answer
c) $100000 ordinary loss; $50000 capital loss.
As per the provisions of law, loss from the sale/exchange of a capital asset on section 1244 stock has to be treated as an ordinary loss to the extent provided in this section.
For husband and wife who are filing return jointly, the amount treated as ordinary loss cannot exceed $100000 for a year.
Here, $150000 -$100000 treated as ordinary loss = $50000
Balance $50000 will be treated as capital loss.
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