Question

This year, Jack O. Lantern incurred a $69,750 loss on the worthlessness of his stock in the Creepy Corporation (CC). The stock, which Jack purchased in 2005, met all of the §1244 stock requirements at the time of issue. In December of this year, Jack’s wife, Jill, also incurred a $82,500 loss on the sale of Eerie Corporation (EC) stock that she purchased in July 2005 and which also satisfied all of the §1244 stock requirements at the time of issue. Both corporations are operating companies. Assume that they file a joint return.

a. How much of the losses incurred on the two stock sales can Jack and Jill deduct this year, assuming they do not have capital gains in the current or prior years?

Answer 1

a) -Total deduction of =$103,000.

•§1244 limits the ordinary loss deduction for a married couple filing jointly to $100,000.

• In this case, the total loss incurred on the §1244 stock is $1,52,250 ($69,750 + $82,500).

[( 1,52,250-1,00,000)= $52,250]

•The remaining ($52,250 loss) is treated as a capital loss.

•Which can offset other capital gains plus $3,000 of ordinary income.

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