Stacy, who is married and sole shareholder of ABC Corporation, sold all of her stock in the corporation for $100,000. Stacy had organized the corporation in 2009 by contributing $225,000 and receiving all of the capital stock of the corporation. ABC Corporation is a domestic corporation engaged in the manufacturing of ski boots. The stock in ABC Corporation qualified as Sec. 1244 stock. The sale
results in a(n)
A) ordinary loss of $125,000.
B) long-term capital loss of $125,000.
C) long-term capital loss of $100,000 and ordinary loss of $25,000.
D) ordinary loss of $100,000 and long-term capital loss of $25,000.
D) ordinary loss of $100,000 and long-term capital loss of $25,000.
The loss realized is $100,000 - $225,000 = ($125,000). Since the stock is Section 1244 stock and Stacy is an original owner, the first $100,000 (for married individuals) of the loss is treated as ordinary. The remainder of $25,000 ($125,000 - $100,000) is treated as long-term capital gain since Stacy held the stock longer than 12 months.
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