Jackson, a single individual, inherited Bean Corp. common stock from Jackson’s parents. Bean is a qualified small business corporation under Code Section 1244. The stock cost Jackson’s parents $20,000 and had a fair market value of $25,000 at the parents’ date of death. During the year, Bean declared bankruptcy and Jackson was informed that the stock was worthless. What amount may Jackson deduct as an ordinary loss in the current year?

Question

06-12-2019
Business

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Jackson, a single individual, inherited Bean Corp. common stock from Jackson’s parents. Bean is a qualified small business corporation under Code Section 1244. The stock cost Jackson’s parents $20,000 and had a fair market value of $25,000 at the parents’ date of death. During the year, Bean declared bankruptcy and Jackson was informed that the stock was worthless. What amount may Jackson deduct as an ordinary loss in the current year?

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mtzion mtzion · Answer 1 · 2019-12-08T19:03:27+01:00

Answer:

Jackson can only deduct $0.

Explanation:

The treatment of this question falls under Section 1244 of the IRS and its treatment for Tax.

According to Section 1244 Stock, there are conditions before a stock loss can be deducted as an ordinary loss.

Two of the requirements are as follows:

The shareholder must have purchased the stock and not received it as compensation.
Only individual shareholders who purchase the stock directly from the company qualify for the special tax treatment.

In the case of Jackson, the stock was inherited from his parents and not purchased directly from Bean Corp disqualifying from the provision of the section.