On September 3, 2017, Able, a single individual, purchased § 1244 stock in Red Corporation from his friend Al for $60,000. On December 31, 2017, the stock was worth $85,000. On August 15, 2018, Able was notified that the stock was worthless. How should Able report this item on his 2018 tax return?
A) $85,000 capital loss.
B) $85,000 ordinary loss.
C) $50,000 ordinary loss and $35,000 capital loss.
D) $60,000 ordinary loss.
E) None of the above.

Question

Quizplus · Accepted Answer

Able cannot claim an ordinary loss under § 1244 because he did not acquire the stock directly from the corporation. Therefore, the loss is treated as a capital loss. Since the stock became worthless, Able can claim a $60,000 capital loss.

On September 3, 2017, Able, a Single Individual, Purchased §