On February 20, 2018, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000.On May 1, 2019, the stock became worthless.During 2019, Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago, a $9,000 loss on a nonbusiness bad debt, and a $5,000 long-term capital gain.How should Bill treat these items on his 2019 tax return?

Question

Quizplus · Accepted Answer

The $8,000 loss on § 1244 small business stock can be treated as an ordinary loss, which is more beneficial than a capital loss because it can offset other types of income without the capital loss limitations. The $9,000 loss on a nonbusiness bad debt is treated as a short-term capital loss, regardless of how long the debt was held. The $1,000 loss on the Pink Corporation stock is a capital loss, and since the stock became worthless in 2019, it is treated as a long-term capital loss because the holding period is deemed to be more than one year. The $5,000 long-term capital gain can offset the long-term capital loss, leaving Bill with an $8,000 ordinary loss (from the § 1244 stock) and a net $3,000 short-term capital loss (the remaining $4,000 short-term loss from the nonbusiness bad debt after offsetting the long-term capital gain).

On February 20, 2018, Bill Purchased Stock in Pink Corporation