Question

Art, an unmarried individual, transfers property (basis of $130,000 and fair market value of $120,000) to Condor Corporation in exchange for $1244 stock. The transfer qualifies as a nontaxable exchange under $ 351. Because the property is loss property, Condor takes a basis in the property of $120,000. Five years later, Art sells the Condor stock for $50,000. With respect to the sale, Art has:
a. An ordinary loss of $80,000.
b. An ordinary loss of $70,000 and a capital loss of $10,000.
c. A capital loss of $80,000.
d. A capital loss of $30,000 and an ordinary loss of $50,000.
e. None of the above.

Answer 1

Answer: The correct answer is "d. A capital loss of $30,000 and an ordinary loss of $50,000.".

Explanation: With respect to the sale, Art has: A capital loss of $30,000 and an ordinary loss of $50,000.

For the shares of $ 1244 the basis is $ 120000, when Art sells the shares at $ 50,000 the loss is $ 70,000 but as Art is not married the ordinary loss that corresponds to it is $ 50,000 and $ 30,000 correspond to the remaining capital loss.