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
