Question

Compute the following regarding business and nonbusiness bad debts.

On May 9, 2016, Calvin acquired 700 shares of stock in Aero Corporation, a new startup company, for $153,250. Calvin acquired the stock directly from Aero, 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, 2018, Calvin sold all of his Aero stock for $15,325. Assume that Calvin is single.

If an amount is zero, enter "0".

As a result of the sale, Calvin has:

Ordinary loss:	$
Short-term capital loss:	$
Long-term capital loss:

Answer 1

Answer

Ordinary loss:	$50,000
Short-term capital loss:	$0
Long-term capital loss: ($153,250 - $15,325 - $50,000)	$87,925

Explanation: When a shareholder classified his/her inventment in stocks of a domestic small business corporation under § 1244 of IRC , then any loss till $50,000 from sales of such stock will be consider as ordinary loss .

In the given question , Calvin incurred $137,925 ($153,250 - $15,325) loss from sales of his stocks. Since his investment is classified under § 1244 , Ordinary loss is $50,000 & rest $87,925 ($137,925- $50,000) is considered as long-term capital loss (since investment is held for more than 1 year , the capital loss is long term & not short term)