Question

Art, an unmarried individual, transfers property (basis of $130,000 and fair market value of $120,000) to Condor Corporation in exchange for §1244 stock. The transfer qualifies as a nontaxable exchange under § 351. Because the property is loss property, Condor takes a basis in the property of $120,000. Five years later, Art sells the Condor stock for $50,000. With respect to the sale, Art has:_______
a. An ordinary loss of $80,000.
b. An ordinary loss of $70,000 and a capital loss of $10,000.
c. A capital loss of $80,000.
d. A capital loss of $30,000 and an ordinary loss of $50,000.
e. None of the above.

Answer 1

Answer:

d. A capital loss of $30,000 and an ordinary loss of $50,000.

Explanation:

Data given in the question

Basis of property = $130,000

Fair market value of property = $120,000

Sale value of the condor stock = $50,000

According to the section 1244, the ordinary loss should be maximum upto $50,000 in the case of the individual and the $100,000 for filling the return jointly

The total loss is

= $130,000 - $50,000

= $80,000

So, in the given case, the Art is an unmarried so only $50,000 would be treated as an ordinary loss

So, the remaining loss i.e $30,000 treated as a capital loss