Question

During the current​ year, Karen sells her entire interest in Central Corporation common stock for $ 22 comma 000. She is the sole​ shareholder, and originally organized the corporation several years ago by contributing $ 89 comma 000 in exchange for her​ stock, which qualifies as Sec. 1244 stock. Since its​ incorporation, Central has been involved in the manufacture of items that protect personal computers from static electricity.​ Unfortunately, this market is extremely​ competitive, and Central Corporation incurs substantial losses throughout its existence.
a. Assuming Karen is single, what are the amount and character of the loss recognized on the sale of the Central Corporation stock?

b. Assuming Karen is married and files a joint return, what are the amount and the character of the loss recognized on the sale of the Central Corporation stock?

c. How would your answer to Part a change if Karen had originally purchased the stock from another shareholder rather than organizing the corporation?

d. How might Karen have structured the transaction in Part a to receive a greater tax advantage?

Answer 1

Solution and Explanation:

Amount realized   22,000 Minus: Basis 89,000 Loss recognized 67000

answer a ) Since Karen is single she can guarantee this lose as a common misfortune to a limit of $50,000. Karen won't have the option to guarantee the whole $67,000 that she lost she can just guarantee $50,000.  

answer b) Since Karen is recording a joint government form she can guarantee a lose of upto $100,000. Karen will have the option to guarantee the whole loss of $67,000.  

answer c ) With the stock being bought from another investor as opposed to the sorting out enterprise she can guarantee the whole loss of $67,000 as a captial gain misfortune.  

answer d ) B. By selling a segment of the stock in one year and the staying stock in one more year Karen could change over the whole misfortune on the deal to a normal misfortune.