Capital Gains and Losses
Capital Gains Tax Questions? Ask a Tax Advisor for Answers ASAP
Hi, my name is Mark. I will be happy to help you with your question. Please give me a few moments to prepare your response.
The basis in the stock would have been the Fair Market Value of the property at the time that it was contributed to the C-Corporation. The journal entry to record the contribution of the property would have credited the Capital Stock and Additional Paid in Capital Account. Your assumption of taking 20% of the additional paid in capital is correct. You would also take 20% of the Capital Stock account as well. It sounds like you would have a loss on the sale. The loss would be deductible. Please give me a few more moments.
I believe that you would have a section 1244 stock loss. Section 1244 of the tax code allows for losses from the sale of small domestic corporation to be deducted as a ordinary loss instead of a capital loss up to $50,000 ($100,000 if married). I see why you are saying that this would be a non-deductible loss due to a related party transaction.
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No, you are correct that the loss is non-deductible because of the related party issue. I am sorry I did not consider that aspect before I mentioned the 1244 loss.
I was happy to help . Please let me know if you have any other questions.