This is because since the company became worthless during the year, a constructive sale of the stock occurs on Dec 31 of this year. Therefore, Uli has a short term holding period because she is deemed to have held the stock for exactly one year where long term holding periods require at LEAST one year and one day.
This is because it was capitalized with less than $1 million and Vince was an original shareholder, the stock is Section 1244 stock in Vince's hands. Vince can deduct up to $50,000 of losses as an ordinary loss in any one tax year and the remaining loss is treated as a capital loss. Therefore, Vince will be able to deduct $50,000 of his loss as a Section 1244 loss against ordinary income and will qualify for an additional $3,000 long-term capital loss deduction. The remaining capital loss of $47,000 will be carried forward to future tax years.
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