Steve Has a Capital Loss Carryover in the Current Year

question 151

Essay

Steve has a capital loss carryover in the current year of $30,000.He owns 3,000 shares of stock in Carmine Corporation,which he purchased six years ago for $20 per share.In the current year,Carmine Corporation (E & P of $750,000) redeems all of his shares for $140,000.Steve is in the 33% tax bracket.What is his income tax liability with respect to the corporate distribution if:
a.The redemption qualifies for sale or exchange treatment, and Steve has no other transactions in the current year involving capital assets?
b.The redemption does not qualify for sale or exchange treatment?

---

Definitions:

Ricardian Advantage

A theory in economics that suggests countries should specialize in producing and exporting goods in which they have a relative productivity advantage.

Opportunity Cost

The sacrifice of gains that could have been obtained from alternative choices when one is selected.

Tractors

Farm vehicles designed for high torque at low speeds, used primarily for hauling machinery and trailers in agricultural settings.

Bicycles

Human-powered, pedal-driven vehicles with two wheels attached to a frame, used for transportation, recreation, or sport.