Question

On May 9, 2017, Calvin acquired 250 shares of stock in Hobbes Corporation, a new startup company, for $68,750. Calvin acquired the stock directly from Hobbes, and it is classified as $ 1244 stock (at the time Calvin acquired his stock, the corporation had $900,000 of paid-in capital). On January 15, 2019, Calvin sold all of his Hobbes stock for $7,000. Assuming that Calvin is single, determine his tax consequences as a result of this sale.

Answer 1

Calvin's Long Term Capital Loss is $11,750

Step-by-step explanation:

Section 1244 Conditions:

1) Applicable to Small Business Stock

2) Loss can be from sale of stock or or worthless stock

3) Stock Must be directly purchased from corporation

4) Ordinary Loss Treatment is limited to $50000/$100000 for Joint filing

5) Over and above $ 50000 loss is treated as capital loss

6) Corporation paid up surplus should not exceed 1 Million

7) Applicable to both Common vs Preferred stock

Calvin has

Ordinary Loss = $50,000, Ordinary loss limited to $50,000 for single

Short Term Capital Loss = $0

Long Term Capital Loss = Value of shares Acquired - Selling price - Ordinary loss

= $68,750 -$7,000 - $50,000

= $11,750

Therefore Long Term Capital Loss = $11,750