Question

[2] During the current year, Mrs. Venture sold her interests in two small business corporations (Sec. 1244). Her loss on Corporation X stock was $120,000, and her loss on Corporation Y stock was $20,000. Mrs. Venture files jointly with her husband. What are the amount and the character of Mrs. Venture's loss to be reported on their joint return for the current year? A. $140,000 ordinary; $0 capital. B. $100,000 ordinary; $40,000 capital. C. $40,000 ordinary; $100,000 capital. D. $0 ordinary; $140,000 capital. The correct answer is B. A. The ordinary loss is limited. The remaining amount is a capital loss. B. Unlike losses on most capital assets held long-term, part of the loss from the sale or exchange of Sec. 1244 stock is treated as ordinary loss. Under Sec. 1244(b), the aggregate amount treated by the taxpayer by reason of Sec. 1244 as an ordinary loss shall not exceed $100,000 in the case of a husband and wife filing a joint return. The aggregate Sec. 1244 loss, in this case, is $140,000 ($120,000 from Corporation X + $20,000 from Corporation Y). Subject to the Sec. 1244(b) limitation, $100,000 is allowed as ordinary loss; the remaining $40,000 is treated as a capital loss. C. The ordinary loss, not the capital loss, is $100,000. D. The loss is ordinary up to the limit, with the excess reported as capital loss.

Answer 1

Section 1244 of the Internal Revenue Code allows $50,000 and $100,000 of the loss treated as Ordinary Loss for individual and joint returns respectively. Net Capital Loss deduction is limited to $3,000.

Question 2 is about reporting the loss

In Question 2, the question is asking for how the loss are reported in the current year and not how much loss is deducted.

Up to $100,000 is reported as Ordinary Loss and the remaining $40,000 is reported as Capital Loss.

Question 3 is about deduction of the loss

In Question 3, the question is asking for how much loss is deducted in the current year and not how the loss are reported.

In question 3 Up to to $100,000 is reported as Ordinary Loss and the remaining $57,000 is reported as Net Capital Loss. In that $57,000 net capital loss only $3,000 is allowed to be deducted for the current year.