The Jon and Terry Partnership acquired $600,000 in qualifying Sec. 1244 stock from Bee Corporation as...

The Jon and Terry Partnership acquired $600,000 in qualifying Sec. 1244 stock from Bee Corporation as an investment in Year 1. The partnership sold the Bee Corporation stock in Year 3 for $450,000. Jon and Terry have shared profits and losses in a 2:1 ratio, respectively, since its inception. What is the amount and the character of the loss recognized by Jon, who is single, in Year 3?

Ordinary Loss

Capital Loss
A.

$50,000

$50,000
B.

$0

$50,000
C.

$100,000

$0
D.

$0

$100,000

Expert Solution

Answer: Option A (Ordinary Loss = $50,000, Capital Loss = $50,000)

Explanation: As per Sec 1244, the amount of ordinary loss shall not exceed $50,000 for any taxable year. This limit is $100,000 in case of a husband and wife filing a joint return.

Total loss in given case = $600,000 - $450,000 = $150,000

Share of Jon in the loss = $150,000 * 2 / 3 = $100,000

Ordinary Loss (maximum as per Sec 1244) = $50,000

Capital Loss = $100,000 - $50,000 = $50,000

ekkarill92 answered 2 years ago

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