ExpertEasy1 markMultiple Choice
CPA · Question 31 · Area IV: Property Transactions
A taxpayer holds §1244 small business stock purchased for $200,000. The taxpayer is single. The stock becomes worthless in Year 1. What is the character of the loss?
A taxpayer holds §1244 small business stock purchased for $200,000. The taxpayer is single. The stock becomes worthless in Year 1. What is the character of the loss?
Answer options:
A.
$200,000 Capital Loss
B.
$100,000 Ordinary Loss; $100,000 Capital Loss
C.
$50,000 Ordinary Loss; $150,000 Capital Loss
D.
$200,000 Ordinary Loss
How to approach this question
Check filing status. Single limit = $50k. MFJ limit = $100k. Allocate loss up to limit as Ordinary, excess as Capital.
Full Answer
C.$50,000 Ordinary Loss; $150,000 Capital Loss✓ Correct
C
IRC §1244. For a single taxpayer, the maximum ordinary loss is $50,000. The remaining $150,000 is treated as a capital loss (subject to $3,000 annual deduction limit against ordinary income).
Common mistakes
Using the MFJ limit ($100k) for a single taxpayer; treating the whole loss as ordinary.
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