Gandulf who is married and files a joint tax return with his

Gandulf, who is married and files a joint tax return with his wife, transfers property (basis of $840,000 and fair market value of $650,000) to Falk Corporation in exchange for shares of § 1244 stock. Assume that the transfer qualifies under § 351.

a. If Gandulf sells the stock for $400,000 two years later, he would have a capital loss of $________ and an ordinary loss of $________ for tax purposes.

Solution

Loss on sale of stock = $840000 - $400000

= $440,000

Out of this $100,000 should be treated as ordinary loss and $340,000 should be treated as capital loss.