[gobias]

In the current year, Fitz, a single taxpayer, sustained a $48,000 loss on Code Sec. 1244 stock in JJJ Corp., a qualifying small business corporation, and a $20,000 loss on Code Sec. 1244 stock in MMM Corp., another qualifying small business corporation. What is the maximum amount of loss that Fitz can deduct for the current year?

a. $18,000 ordinary loss and $50,000 capital loss.

b. $68,000 capital loss.

c. $50,000 capital loss.

d. $50,000 ordinary loss and $18,000 capital loss.

The answer is D. Why can you deduct the $18k (excess over $50k allowable ordinary deduction) as a capital loss? I thought capital losses were limited to a $3k immediate deduction, and the remainder used to offset capital gains.

The only rationalization I can think of is that the examiners are using the term “deduct” to mean deduct and/or offset. So if the taxpayer has capital gains of at least $15k, the maximum that he could potentially “deduct” is the full loss (split between ordinary and capital).

F - 86
R - 90
A - 97
B - 91

[Justinnnn]

Typical CPA exam question. You are right on in my opinion. The “maximum” would be 50k ordinary and the 18k capital loss (if cap gains available).

It is a good sign that you question even the right answer and know the $3,000 rule for individuals.

REG 80 2/7/11
FAR 91 10/8/11
AUD 97 11/22/11
BEC 96 2/4/12

CPA 3/15/13

[Author]

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