A finished ACC-681 Topic 2 worthless stock loss computation example, qualifying $100,000 as a section 1244 ordinary loss, netting the $60,000 remainder against capital gain and carrying $45,000 forward. Searches like "acc 681 topic 2 assignment example", "acc681 topic 2 sample" and "acc-681 topic 2 example" land here.
What a finished ACC-681 Topic 2 worthless stock loss computation looks like
The finished computation starts from the facts that qualify the shares, all figures illustrative. The husband paid cash for original-issue common stock four years ago, the corporation had received $700,000 of capital in all, well inside section 1244's $1,000,000 ceiling, and its receipts came from software subscriptions rather than passive sources. This year it ceased operating and its shares became wholly worthless, which section 165(g) treats as a sale on the last day of the year. On the joint return, $100,000 of the $160,000 loss is ordinary under section 1244(b) and offsets wages. The other $60,000 is long-term capital loss; netted against $12,000 of long-term gain from a brokerage account, it leaves $48,000, of which section 1211(b) allows $3,000 against ordinary income and section 1212(b) carries $45,000 forward.
How an ACC-681 Topic 2 example is structured
The computation is laid out as a chain in which each figure is carried into the next. A qualification block comes first and tests every section 1244 condition against the facts: an individual original holder, stock issued for money, the capital ceiling and the gross receipts test over the corporation's five most recent years. The worthlessness block follows, naming the event that fixed the year, since the deduction belongs to that year and no other. The ordinary portion is computed next against the joint-return limit. Capital netting comes after, the remainder set against the brokerage gain before any annual limit is applied. A carryforward schedule states the $45,000 and its long-term character. A final panel reruns the chain on separate returns, where the ordinary portion falls to $50,000, and says why the couple's choice of status therefore carries a tax cost.
Every section 1244 condition tested
Original holding, a cash purchase, capital under $1,000,000 and operating rather than passive receipts are each checked, because failing any one leaves the whole loss capital.
Worthlessness fixed to one year
Section 165(g) places the loss on the last day of the year the shares became worthless, so the computation names the closure that marks that year.
The joint-return limit applied first
Section 1244(b) allows $100,000 of ordinary loss on a joint return, which offsets wages directly and leaves $60,000 for the capital rules.
Netting before the annual limit
The $60,000 capital loss meets the $12,000 brokerage gain before section 1211(b) applies, so only the $48,000 net figure is tested against the $3,000 allowance.
Filing separately priced, not assumed away
On separate returns the husband's ordinary limit halves to $50,000, moving another $50,000 into capital loss that may take years to use.
Where marks go in ACC-681 Topic 2
Most lost credit here comes from treating the whole $160,000 as a capital loss, which caps this year's benefit at $3,000 when section 1244 would allow $100,000 against wages. The reverse error calls all $160,000 ordinary, ignoring the annual limit in section 1244(b). Papers that apply section 1244 without testing its conditions assume the answer, and the gross receipts test is the one most often skipped, although a corporation living on interest or rents would fail it. Applying the $3,000 limit before netting against the brokerage gain understates what the couple can use. Claiming the loss in the year the company first struggled, rather than the year the shares became worthless, attaches it to a year the facts do not support. Computations that never compare filing statuses miss that the couple's choice changes the character of $50,000.
Get an ACC-681 Topic 2 example written to your instructions
Send the ACC-681 Topic 2 instructions, the rubric and the individual fact pattern your section is working. A custom example is written to them, with each qualifying condition tested, worthlessness tied to its year, ordinary and capital portions computed in order, carryovers stated and filing status compared, returned in 24 to 48 hours. The first one is free.
ACC-681 Topic 2 questions, answered
Why does the business's entity form matter to this loss?
Because a C corporation keeps its operating losses inside, so the shareholders' investment reaches their return only once, when the stock is sold or becomes worthless. Had the startup been organized as a partnership or S corporation, its losses would have flowed to the owners year by year, subject to basis and the other loss limits. The C form is why the whole $160,000 arrives in one year and why section 1244 matters.
What if the couple claims the loss in the wrong year?
Worthlessness has to be claimed in the year it actually occurs, which is often unclear when a company winds down slowly. Because of that uncertainty, section 6511(d)(1) gives a longer period, seven years, to claim a refund for a worthless security. The example identifies the closure as the event fixing the year and notes that an earlier year could be revisited within that window.
Does section 1244 apply if the shares were bought from another shareholder?
No. The ordinary loss is available only to the individual, or partnership, to whom the corporation originally issued the stock. Shares bought from a founder, received by gift or inherited produce capital loss under the usual rules, however small the corporation. That is why the qualification block records that the husband paid cash directly to the corporation when the shares were issued.