Tax Consequences and Loss Treatment in Different Scenarios

Chapter 6 LO. 2On May 9, 2018, 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, 2020, 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. It is possible to receive an ordinary loss deduction if the loss is sustained on small business stock (§ 1244 stock).Only individuals who acquired the stock from the corporation are eligible to receive ordinary loss treatment under § 1244.The ordinary loss treatment is limited to $50,000 ($100,000 for married individuals filing jointly) per year.Losses on § 1244 stock in excess of the statutory limits receive capital loss treatment. Therefore, Calvin's total loss of $61,750 [$7,000 (amount realized) − $68,750 (adjusted basis)] is treated as follows: $50,000 is an ordinary loss, and the remaining $11,750 ($61,750 − $50,000) is a long-term capital loss. LO. 5Determine the treatment of a loss on rental property under the following facts: Basis$650,000 FMV before the loss800,000 FMV after the loss200,000 The loss relates to a rental property (i.e., it is not a personal casualty loss). The amount of the loss is $600,000, the lesser of the decline in FMV $600,000 ($800,000 − $200,000) or basis of $650,000. Since the loss relates to a rental property, the loss will be a for AGI deduction. LO. 6In the current year, Ed invests $30,000 in an oil partnership. He has taxable income for the current year of $2,000 from the oil partnership and withdraws $10,000. What is Ed's at-risk amount at the end of the year? Beginning at-risk amount$ -0- Investment in partnership30,000 Plus: Share of current partnership taxable income 2,000 Less: Withdrawals from the partnership(10,000) Ending at-risk amount$22,000 LO. 7Lucy sells her partnership interest, a passive activity, with an adjusted basis of $305,000 for $330,000. In addition, she has current and suspended losses of $28,000 associated with the partnership and has no other passive activities. Calculate the effect of these facts on Lucy's current-year adjusted gross income. Amount realized$330,000 Less: Adjusted basis(305,000) Total gain$25,000 Less: Suspended losses(28,000) Loss deductible for Adjusted Gross Income (not passive)($3,000)