Several years ago,John purchased 2,000 shares of § 1244 stock from Red Corporation for $40,000.Last year,John sold one-half of his Red Corporation stock to Mike for $12,000.During the current year,John sold the remaining Red Corporation stock for $3,000.John has a $17,000 ($3,000 - $20,000)ordinary loss for the current year.

Question

Quizplus · Accepted Answer

Since John bought § 1244 stock, he can treat his loss as an ordinary loss instead of a capital loss. The sale of the remaining stock for $3,000 results in a loss of $20,000 (since the purchase price was $40,000), which can be offset against ordinary income. Therefore, John has a $17,000 ordinary loss for the current year.

Several Years Ago,John Purchased 2,000 Shares of § 1244 Stock