A worthless security had a holding period of 6 months when it became worthless on December 10,2016.The investor who had owned the security had a basis of $20,000 for it.Which of the following statements is correct?
A)The investor has a long-term capital loss of $20,000.
B)The investor has a short-term capital loss of $20,000.
C)The investor has a nondeductible loss of $20,000.
D)The investor has a short-term capital gain of $20,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Since the holding period of the security was 6 months or less, it is considered a short-term capital loss. The investor can claim a deduction of $3,000 per year against ordinary income and carryover any remaining losses to future years. Therefore, the investor has a short-term capital loss of $20,000.

A Worthless Security Had a Holding Period of 6 Months