Caroline, a single taxpayer, owns 2,000 shares of qualifying small business stock that she purchased for $230,000. During the current year, she sells 800 of the shares for $35,000. If this is the only stock Caroline sells during the year, what can she deduct as an ordinary and capital loss?

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Business

Keon Ballard

4 July, 08:36

Caroline, a single taxpayer, owns 2,000 shares of qualifying small business stock that she purchased for $230,000. During the current year, she sells 800 of the shares for $35,000. If this is the only stock Caroline sells during the year, what can she deduct as an ordinary and capital loss?

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Rashad Bell · Answer 1

Capital loss = $57,000

There is no ordinary loss.

Explanation:

Capital loss is defined as loss from the disposal of capital asset such as stock market assets. For example when the value of an investment decreases and it is sold the loss realised is called capital loss.

For an asset that is held, the capital loss is not yet realised. Only when the asset is sold do we recognise a loss.

In this scenario the previous value of one share is 230,000/2,000 = $115 per share.

Caroline sold 800 shares. Their previous value will be 800 * 115 = $92,000

She sold the 800 shares for $35,000

Capital loss = Initial value - Present sale price

Capital loss = 92,000 - 35,000 = $57,000

Ordinary loss is defined as the loss that is realised when expenses exceed revenue during normal business operations. For example losses on process of selling inventory, supplies, or intellectual property.

In this scenario there is no activity that will generate ordinary loss.