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. 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 : $11,750.

Explanation:

The objective of this question is to determine his tax consequences as a result of this sale

From the question given ; the result of the sale  which Calvin possess is as follows:

Ordinary Loss: The Ordinary loss is said to be  limited to $50,000 for individual.   ( According to Section 1244 ; the section give opportunities for  losses from sale of shares of small and  domestic corporations to be deducted as ordinary losses instead of as capital losses up to a maximum of $50,000 for individual .)                      

Short Term Capital Loss is said to be zero If it's one year or less.

Long Term Capital Loss is $11,750. How obtained this desired output of $11,750 is as a result of the following:

We know that :

Value of shares Acquired $68,750

Calvin sold all of his Hobbes stock for $7,000  (i.e the selling price rate)

Also , the Ordinary loss = $50,000

Therefore :

Value of shares Acquired = $68,750 - $7,000 - $50,000 = $11,750