Question

2019 tax law applies

On July 20, 2018, Matt (who files a joint return) purchased 3,000 shares of Orange Corporation stock (the stock is 244 small business stock) for $24,000. On November 10, 2018, Matt purchased an additional 1,000 shares of Orange Corporation stock from a friend for $150,000. On September 15, 2019, Matt sold the 4,000 shares of stock for $120,000. How should Matt treat the sale of the stock on his 2019 return? a. $54,000 ordinary loss. b. $100,000 ordinary loss; $46,000 net capital gain. c. $100,000 ordinary loss; $20,000 STCL d. $130,000 ordinary loss; $66,000 LTCG e. None of these noue In 2019, Grant's personal residence was completely destroyed by fire. He was insured for 100 % of his actual loss, and he received the insurance settlement. Grant had adjusted gross income before considering the casualty item of $30,000. Pertinent data with respect to the residence follows: Cost basis eos $280,000 Value before casualty 250,000 Value after casualty -0- What is Grant's allowable casualty loss deduction? a. $0 b. $6,500 R c. $6,900 d. $10,000 onog ue e. $80,000

Answer 1

(1) Ans: Option ( E) None of these

Explanation:

To qualify for section 1244 stock must be purchased from corporation. this stock is not section 1244 as it is not purchased from corporation.

STCL ( 1000 share × $120)		($120000)
Amount Realized ( 3000 share ×$30)	$90,000
Less: Basis	($24000)
Long term capital gain		$66000
Net short term capital gain		($54000)

Explanation:

1)Amount realized per share:

$ 120000 ÷ 4000

= $ 30 per share

2) purchase price per unit of 1000 share purchased from friend:

$ 150,000 ÷ 1000 share

= $150 per share

3) short term loss:

= ( $150 - $30) * 1000

= $ 120,000

4) if stock is held for more than 12 months it is considered as long term capital asset, and when sold amount that would be realised would be referred to capital gain or loss.

5) 3000 stock was purchased on july 20,2018 and was sold ôn sep. 15 2019 i.e more than 12 months , hence it is a long term asset

6) 1000 stock from friend were purchased on Nov.2018 and sold on sep 2019 i.e less than 12 months , hence it is a short term asset.