20110.11Investments - Investments Worthless Securities and...

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Investments
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Worthless Securities and §1244  Stock Section 165  (g)(1)  – treatment as sale  for $0 on the last day of the year.
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Section 1244 – first $50,000 or $100,000 MFJ  treated as ordinary  in year of loss, if original capital contributed is less than $1 Mil.  and shareholder is individual buying from corp. Qualified small business stock – exclude 75% of stock acquired  between 2/2009 and 1/1/2011 (assets < $50 million:  100%  exclusion under the December 2010 changes.
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10.  Dr. T recently called her tax adviser and  indicated that one of her investments had turned  sour and now was worthless. Assuming T has no  other property transactions during the year, the  best possible tax treatment  could  result from a  $30,000 loss from holding which of the following? a. a worthless bond. b. a worthless nonbusiness debt. c. a worthless share of § 1244 stock. d. some combination of the above, because      the treatment would be the same in both or all  cases.
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If you retire bonds/notes early, and they were sold  at a discount or premium, a gain/loss will result. This gain/loss is capital in the year or retirment. (New Slide) Retirement of  Corporate Obligations
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(New Slide) Options Does NOT include employee stock options Lapse of option is considered a sale for $0,  resulting in capital loss for grantee.   Grantor has short-term capital gain if option is for  stocks or commodities (futures) Otherwise, ordinary income If option is exercised purchase price => basis  includes option price If option is sold by grantee, grantor does nothing  for now, grantee has capital gain or loss
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A short sale is when a taxpayer sells borrowed  stock that s/he must subsequently replace. Gain/loss not known until replacement price is  repurchased, so Gain/loss recognized in the period of repurchase. Short Sales (New Slide)
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(New Slide) Short Sale Against  the Box What if the taxpayer sells borrowed stock, but  could have sold that same kind of stock from his  own portfolio, because he does own (or will buy)  that stock himself also before closing the short  sale? This is called “short against the box” Legislation was passed so that if the short is not  closed by January 31st of the following year, it is  treated as closed on the day of the short sale  (treated as if t/p closed their position from their  own portfolio).
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20110.11Investments - Investments Worthless Securities and...

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