A worthless security had a holding period of 6 months when it became worthless on December 10, 2018. 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

The investor has a short-term capital loss of $20,000 because the holding period of the security was less than one year. The loss can be used to offset other capital gains in the same year and up to $3,000 of ordinary income. Any remaining loss can be carried forward to future years.

A Worthless Security Had a Holding Period of 6 Months