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Nelson purchase of Black Corporation stock

Four years ago, Nelson purchased stock in Black Corporation for $37,000. The stock has a current value of $5,000. Nelson needs to decide which of the following alternatives to pursue. Determine the tax effect of each.

a. Without selling the stock, Nelson deducts $32,000 for the partial worthlessness of Black Corporation investment.

B. Nelson sells the stock to his aunt fo $5,000 and deducts a $32,000 long-term capital loss.

c. Nelson sells the stock to a third party and deducts an ordinary loss.

d. Nelson sells the stock to his mother for $5,000 and deducts a $32,000 long term capital loss.

e. Nelson sells the stock to a third party and deducts a $32,000 long term capital loss.

Solution Preview

a. Without selling the stock, Nelson deducts $32,000 for the partial worthlessness of Black Corporation investment.

A stock must be sold in order to claim a loss. A decrease in value does not constitute a reportable event for tax filing. It may seem unfair but the issue is the objective decreased value and the possibility that it might change again as a taxpayer continues to hold the stock. So, no deal.
http://www.wwwebtax.com/deductions_z_other/worthless_securities.htm

b. Nelson sells the stock to his aunt for $5,000 and deducts a $32,000 long-term capital loss.

This is a ...

Solution Summary

The 369 word cited solution explains each option presented in the problem together with examples as needed for better understanding.

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