Mrs.Tinker paid $78,400 to purchase 15,000 shares of HiFli common stock in 2006.This year,HiFli declared bankruptcy and announced that its stock has no value.What is the tax consequence to Mrs.Tinker of this bad news?

Question

Quizplus · Accepted Answer

Mrs. Tinker will incur a capital loss of $78,400 on the 15,000 shares of HiFli common stock, as it has been declared worthless due to the company's bankruptcy. This loss can be used to offset any capital gains for the current tax year and may carry over to future tax years. Ordinary abandonment loss would only apply if Mrs. Tinker actively abandoned or discarded the shares, which is not the case here. There is no need to dispose of the stock for loss recognition, as the bankruptcy announcement is sufficient evidence of the stock's worthlessness.

MrsTinker Paid $78,400 to Purchase 15,000 Shares of HiFli Common