Question

Problem 4-49 (0.6) Gigi transfers real estate (basis of $60,000 and fair market value of $40,000 to Monarch Corporation in exchange for shares of 5 1244 stock. Assume that the transfer qualifies under 5 351. a. What is the basis of the stock to Gigi? (Gigi and Monarch do not make an election to reduce her stock basis.) The basis of the stock to Gigi is $ 60,000 In an exception to the capital treatment that generally results. 1244 permits ordinary loss treatment for losses on the sale of worthlessness of stock of so-called small business corporations. By placing Shareholders on a more nearly equal basis with proprietors partners in terms of the tax treatment of losses, the provision encourages Investment of capital in small corporations. Gain on the sale 1244 stock remains capital. b. What is the basis of the stock to Gigi for purposes of $1244? The basis of the stock to Gigi for purposes of 5 1244 is $ 40,000 Comet c. If Gigi sells the stock for $29.000 two years later, how will the loss be treated for tax purposes? Gigi would have a capital loss of $ 2,000 X and an ordinary loss of 2,000 for tax purposes.

Answer 1

c. Gigi would have a capital loss of $ 22,000 and an ordinary loss of $2,000 for tax purposes.

Computation:-

Selling price of Stock = $38,000

Less: Basis of Stock    ($60,000)

Capital Loss = ($22,000)

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