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23 November, 04:19

On May 9, 2013, Calvin acquired 250 shares of stock in Aero Corporation, a new startup company, for $68,750. Calvin acquired the stock directly from Aero, and it is classified as §1244 stock (at the time Calvin acquired his stock, the corporation had $900,000 of paid-in capital). On January 15, 2015, Calvin sold all of his Aero stock for $7,000. Assuming that Calvin is single, determine his tax consequences as a result of this sale.

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  1. 23 November, 04:51
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    tax consequences = $11750

    Explanation:

    given data

    Calvin acquired = 250 shares

    startup company = $68,750

    paid-in capital = $900,000

    Calvin sold = $7,000

    solution

    we know Conditions according to Section 1244 that is Applicable for the Small Business Stock is here as

    (a) Stock is directly purchase from the corporation

    (b) Ordinary Loss Treatment is limited to the $50000 or $100000 for the Joint filing

    (c) Loss may be from the sale of stock or the worthless stock

    (d) and more than $50000 loss is treated capital loss

    so here we know that

    Calvin Ordinary Loss would be = $50000

    remaining loss = $11,750

    long term capital loss will be = $68750 - $7000

    long term capital loss = 61750

    tax consequences = $61750 - 50000

    tax consequences = $11750
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