On February 20, 2016, Bill purchased stock in Pink Corporation (the stock is not

Question

On February 20, 2016, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000. On May 1, 2017, the stock became worthless. During 2017, Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago, a $9,000 loss on a nonbusiness bad debt, and a $5,000 long-term capital gain. How should Bill treat these items on his 2017 tax return?

a.$8,000 ordinary loss and $5,000 short-term capital loss.

b.$8,000 long-term capital loss and $6,000 short-term capital loss.

c.$4,000 long-term capital loss and $9,000 short-term capital loss.

d.$4,000 long-term capital loss and $3,000 short-term capital loss.

e.$8,000 ordinary loss and $3,000 short-term capital loss

Explanation / Answer

e. $8,000 ordinary loss and $3,000 short-term capital loss.

Ordinary loss (small business stock) = ($8,000)

Long-term capital gain $5,000 Less long-term capital loss (worthless securities) ($1,000) Net long-term capital gain $4,000 Less short-term capital loss (nonbusiness bad debt) ($9,000) Net short-term capital loss ($5,000) Short-term capital loss limited to ($3,000)

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