Lynn transfers property (basis of $225,000 and fair market value of $300,000) to Condor Corporation in exchange for § 1244 stock. The transfer qualifies as a nontaxable exchange under § 351. In the current year, Lynn sells the Condor stock for $100,000. Assume Lynn files a joint return with her husband, Ricky. With respect to the sale, Lynn has:

Question

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Since Lynn received § 1244 stock in exchange for property with a basis of $225,000 and a fair market value of $300,000, her basis in the stock is $225,000. When she sells the stock for $100,000, the loss is calculated as follows:
$225,000 (basis) - $100,000 (sale price) = $125,000 loss

Since the stock is § 1244 stock, the loss is treated as an ordinary loss up to the maximum § 1244 loss of $100,000 ($50,000 if filing single). The remaining $25,000 loss is a capital loss. Lynn would report an ordinary loss of $100,000 and a capital loss of $25,000 on her tax return.

Lynn Transfers Property (Basis of $225,000 and Fair Market Value