Chapter 8: Other Deductions, Penalties, and Loss Disallowance

01.Core Concepts

In 2021, Kasey (who is single) purchased a 20% interest in a newly organized company, Mishka Enterprises, Inc. for $100,000. Unfortunately, the company did not succeed, and Kasey’s interest became worthless in 2026. What are the tax consequences for Kasey? • The first $50,000 of loss is treated as an ordinary loss. • Not subject to limitation • The remaining $50,000 of loss is treated as a long-term capital loss. • Kasey’s holding period was greater than 1 year. • Assuming that Kasey had no other capital transactions for the year, she can deduct $53,000 on her 2026 income tax return.