TCOs 4 and 5 On September 3 2010 Able purchased 1244 stock i

(TCOs 4 and 5) On September 3, 2010, Able purchased  1244 stock in Red Corporation for $6,000. On December 31, 2010, the stock was worth $8,500. On August 15, 2011, Able was notified that the stock was worthless. How should Able report this item on his 2010 and 2011 tax returns?

2010—$0; 2011—$6,000 ordinary loss

2010—$0; 2011—$6,000 long-term capital loss

2010—$2,500 short-term capital loss; 2011—$8,500 short-term capital loss

2010—$2,500 short-term capital gain; 2011—$3,800 ordinary loss

None of the above

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Solution

Solution: 2010—$0; 2011—$6,000 long-term capital loss

Explanation: In year 2011, the loss of $6,000 is classified as a $6,000 long term capital loss because the stock is not § 1244 stock to Able