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22 May, 19:11

On May 9, 2017, Calvin acquired 250 shares of stock in Hobbes Corporation, a new startup company, for $68,750. Calvin acquired the stock directly from Hobbes, 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, 2019, Calvin sold all of his Hobbes stock for $7,000. Assuming that Calvin is single, determine his tax consequences as a result of this sale. If an amount is zero, enter "0". As a result of the sale, Calvin has: Ordinary loss: $ Short-term capital loss: $ Long-term capital loss: $

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  1. 22 May, 20:08
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    Ordinary Loss: $50,000

    Short Term Capital Loss : 0

    Long Term Capital Loss : $11,750.

    Explanation:

    The objective of this question is to determine his tax consequences as a result of this sale

    From the question given; the result of the sale which Calvin possess is as follows:

    Ordinary Loss: The Ordinary loss is said to be limited to $50,000 for individual. (According to Section 1244; the section give opportunities for losses from sale of shares of small and domestic corporations to be deducted as ordinary losses instead of as capital losses up to a maximum of $50,000 for individual.)

    Short Term Capital Loss is said to be zero If it's one year or less.

    Long Term Capital Loss is $11,750. How obtained this desired output of $11,750 is as a result of the following:

    We know that:

    Value of shares Acquired $68,750

    Calvin sold all of his Hobbes stock for $7,000 (i. e the selling price rate)

    Also, the Ordinary loss = $50,000

    Therefore:

    Value of shares Acquired = $68,750 - $7,000 - $50,000 = $11,750
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