J and K, who file jointly, started a small business in 1985 by investing $225,000 cash.Their basis in their corporate stock remained at $225,000 until it became worthless during the current year.They have no other gains and losses for the year.How much may they deduct and what is the character of their loss?

Question

Quizplus · Accepted Answer

J and K's loss is an ordinary loss since they invested in a small business, and their basis in the corporate stock was $225,000. They may deduct the full $100,000 ordinary loss in the current year. They are also entitled to a $3,000 capital loss deduction, which will offset other capital gains or ordinary income. The remaining $122,000 of the loss will be carried forward to future tax years as a long-term capital loss.

J and K, Who File Jointly, Started a Small Business