Question

James, a single taxpayer, acquired stock in a corporation that qualified as a small business corporation under Section 1244, at a cost of $120,000 two years ago. James gives the stock to his daughter. The daughter sells the stock for $10,000 two years later. How will the stock be treated for tax purposes, give the dollar amounts?

Answer 1

A capital loss is the loss incurred when a capital stock decrease in value

This loss is not realized untill the investment is sold for a price that is lower than the original purchase price

The capital loss is the difference between the purchase price and the the price which the asset is sold

Capital loss on sale of stock by the daughter = Purchase price - Sale price

Capital loss = $120,000 - $10,000

Capital loss = $110,000

This loss of $110,000 can be shown by the daughter in her return.