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When Pheasant Corporation was formed under § 351, Kristen transferred property (basis of $26,000 and fair market value of $22,500) for § 1244 stock. Kristen’s basis in the Pheasant stock is $26,000. Three years later, Pheasant Corporation goes bankrupt and its stock becomes worthless. Kristen, who is single, owned the stock as an investment. Kristen’s loss is:____________
a. $26,000 capital.
b. $22,500 ordinary and $3,500 capital.
c. $3,500 ordinary and $22,500 capital.
d. $26,000 ordinary.
e. None of the above.

Respuesta :

isaacoranseola

Answer: B $22,500 ordinary and $3,500 capital.

Explanation:

Total loss incurred to Kristen = $26,000

The fair market value = $22,500

Capital loss = Total loss incurred - fair market value

Capital loss = $26,000 - $22,500 = $3,500 Capital loss

So the right answer is Option B $22,500 ordinary and $3,500 capital

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