Question

-All of the following losses are deductible except

A) decline in value of securities.

B) total worthlessness of securities.

C) abandonment of business property.

D) a net operating loss.

-Lucia owns 100 shares of Cronco Inc. which she purchased on December 1 of last year for $10,000. The stock is not Sec. 1244 stock. On July 1 of the current year, Lucia receives notice from the bankruptcy court that Cronco Inc. has been liquidated, and there are no assets remaining for shareholders. As a result, Lucia will have

A) a short-term capital loss of $10,000.

B) a long-term capital loss of $10,000.

C) an ordinary loss of $10,000.

D) no loss allowed.

-All of the following are true of losses from the sale or worthlessness of small business corporation (Section 1244) stock with the exception of

A) the stock must be owned by an individual or a partnership.

B) the stock must have been issued by a domestic corporation.

C) the stock must have been issued for cash or property other than stock or securities.

D) a single taxpayer may deduct, as ordinary losses, up to a maximum of $100,000 per tax year with the remainder treated as capital losses.

Answer 1

1. Operting loss in not dedcutable since it is not additional loss which is calculated.operating loss is result of operational activities which is already accounted in books, which is option no C is correct answer.

2 As per Sec1244 of the internal revenue code is the small business stock provision anacted to allow shareholders of domestic small business corporation to deducte a loss on disposal of such shares as an ordinary loss rather than as a capital loss hence all loss will be treated as ordinary loss of $10000 which is option no C.

3. Section 1244 of the Internal Revenue Code is the small business stock provision enacted to allow shareholders of domestic small business corporations to deduct a loss on the disposal of such stock as an ordinary loss rather than as a capital loss.A loss on Section 1244 stock, on the othe hand, is deductible as an ordinaryloss up to $50,000 ($100,000 on a joint return, even if only one spouse has a Section 1244 loss).

hence Option D is incorrect since Single tax payer can calim only upto $50000.