Shawn Transfers Property (Basis of $40,000 and Fair Market Value

question 82

Multiple Choice

Shawn transfers property (basis of $40,000 and fair market value of $35,000) to Condor Corporation in exchange for § 1244 stock. The transfer qualifies as a nontaxable exchange under § 351; therefore, Shawn's basis in the Condor stock is $40,000. Five years later, Shawn sells the Condor stock for $25,000. With respect to the sale, Shawn has:

• A)An ordinary loss of $15,000.
• B)An ordinary loss of $10,000 and a capital loss of $5,000.
• C)A capital loss of $15,000.
• D)A capital loss of $10,000 and an ordinary loss of $5,000.
• E)None of the above.

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Definitions:

Armature

The rotating coil or coils of a dynamo or electric motor where voltage is induced by magnetic action.

DC Motor

An electric motor that runs on direct current (DC) electricity, converting electrical energy into mechanical energy through the rotation of a shaft.

Magnetic Field

A vector field surrounding magnets, electric currents, and changing electric fields, where magnetic forces are exerted.

Armature

The rotating part of an electric machine (motor or generator) within which a current is induced by a magnetic field.