1244 STOCK LOSS

[Edward]

Have new client that reported stock loss of 195,718 on her (MFS) tax return for 2009. Due to her filing status, limitations apply for ordinary/capital losses. The return reported 50,000 ordinary & 1,500 capital losses for 2009. The balance of 145,718 was classified as a capital loss and carried over to 2010and limited to 1,500 capital loss. T/P insists she can deduct another 50,000 ordinary loss for 2010 and until the 145,718 is eliminated. The Tax book dosen't mention anything about annual limitations, but Key Issue 18C of PPCs DESKBOOK it states "The 50,000 & 100,000 limitations are ANNUAL LIMITATIONS on the amount treated as ordinary losses under IRC Sec 1244".Anyone know how this is to be treated? 1244 stock losses have always been treated as ordinary losses, or did this change? Any assistance will be greatly appreciated.

[Lion EA]

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.

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, snippet above.

[OldJack]

The sec. 1244 loss is limited to 50/100k in the year of sale. The 1244 loss is claimed on form 4797 part 2 which flows to 1040 page 1. If as a result of the 1244 loss the taxpayer has a NOL, then the NOL is carried back or forward as a NOL loss, not a 1244 loss. Any excess over the 50/100k is a capital loss in the year of sale and may be carried forward as a capital loss until used as a capital loss.

[samingeorgia]

I had a client with this issue earlier this year. I agree with Old Jack.

[kcjenkins]

I agree also, the 50K limit is for sales in a particular year, it does not mean you get to take another 50K in the next year. Unless there is a NEW sale in the next year, of course.