1244 Stock Loss

[Edward]

First time for me to have handled a 1244 stock loss. For 2009 (MFS) had total original investment in C Corporation of 195,718, and of course being MFS she is limited to 50,000 ordinary loss with the balance of 145,718 allocated to a LT capital loss carry-over to 2010. Her tax return reflected the 50,000 ordinary stock loss plus 1,500 capital loss. She insists that she qualifies for another 50,000 ordinary loss for the 2010 return. I say no....and that she gets only the 1,500. LT capital loss. Maybe I'm reading this wrong? Her AGI for 2009, after the 50,000 ord loss and the 1500 capital loss ended up at -21890.
Will appreciate any comments.

[Davc]

Agree with you.

[Nashville]

Better Off

If she continues to moan and groan about her loss limited to $1500....

Tell her she's really better off in the long run. It sounds like she is not a high income taxpayer and most of the $50,000 loss would be wasted if she could take it. If she did the math, very little of it would reduce her 2010 tax.

Two scenarios arise which are more advantageous for her not to take $50,000 loss...
1) $1500 in all future years comes off at her highest tax bracket every year...
2) If she has a windfall year because she sells something, more of this loss has been held back to apply to the gain.

[Lion]

Doesn't the excess loss (the part treated as a business loss instead of a capital loss) create an NOL that can be carried back or forward as usual? Was looking at examples in CCH's Practical Tax Expert on line:

Code Sec. 1244 provides individual taxpayers with ordinary loss treatment for losses recognized on the sale Code Sec. 1244 limits ordinary loss treatment for a taxable year to $50,000 ($100,000 in the case of married individuals filing joint returns). Any excess amount is treated is a capital loss. If the amount of the ordinary loss exceeds the taxpayer's income, the excess is treated as a net operating loss (NOL) and can be carried over to other years.

[Nashville]

Yes it does

Lion, it does, but I didn't mention it in the post above because if she is at this income level it still won't change much, if anything.

For example, a NOL carryback to 2009 is to a year already showing in the negative and thus nowhere really to go except forward. Then unless she sells something, it would even put future years in the negative.