Final answer:
The question is about the tax implications of worthless securities under Section 1244, which allows for an ordinary deduction on losses from small business corporation stock, capped at a specific amount depending on filing status.
Step-by-step explanation:
When a security that is a capital asset becomes worthless due to the insolvency of the issuer, the loss is considered to have occurred on the last day of the tax year. Section 1244 of the tax code provides for an ordinary deduction for losses on the disposal of small business corporation stock.
This provision aims to encourage investment in small businesses by allowing investors to claim a sizable deduction, which is capped at $50,000 for individuals or $100,000 for married couples filing jointly.
Investing in stocks comes with the potential for both gains and losses. When individuals purchase stock, they do so with the expectation of a rate of return, either through dividends or a capital gain - the increase in the stock's value from the time of purchase to when it is sold.
The historical context provided by Black Tuesday and the use of leverage and margin illustrate the high-risk nature of investing, where substantial gains are possible but losses can also be devastating.