Question

This year Jack O. Lantern incurred a $55,000 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. Jack’s wife, Jill, also incurred a $70,000 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. 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

Solution :-

As per section 1244,The ordinary loss deduction for a married couple filing return jointly is $100000 and for the capital gain is $3000 which offset the capital gain and ordinary income.

In present scenario,

The loss incurred by Jack and his wife Jill is 125000(55000+70000)

The total deduction allowable is $103000

The remaining loss of (125000 -100000)25000 is to be treated as capital loss.

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