On February 20, 2017, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000. On May 1, 2018, the stock became worthless. During 2018, Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago, a $9,000 loss on a nonbusiness bad debt, and a $5,000 long-term capital gain. How should Bill treat these items on his 2018 tax return?

Question

Quizplus · Accepted Answer

- The worthless stock in Pink Corporation results in a $1,000 capital loss.
- The $8,000 loss on § 1244 small business stock is an ordinary loss.
- The $9,000 loss on the nonbusiness bad debt is a short-term capital loss.
- The $5,000 long-term capital gain can offset $5,000 of the capital losses.

Therefore, Bill has a total of $9,000 in capital losses ($1,000 + $9,000 - $5,000), and $8,000 of those losses are an ordinary loss due to the § 1244 small business stock. The remaining $1,000 capital loss is a short-term capital loss, resulting in a total of $3,000 short-term capital loss.

On February 20, 2017, Bill Purchased Stock in Pink Corporation