This year Jack O. Lantern incurred a $60,000 loss on the worthlessness of his stock in the Creepy Corporation (CC). The stock, which Jack purchased in 2005, met all of the §1244 stock requirements at the time of issue. Jack's wife, Jill, also incurred a $75,000 loss on the sale of Eerie Corporation (EC) stock that she purchased in July 2005 and which also satisfied all of the §1244 stock requirements at the time of issue. Both corporations are operating companies.
a. How much of the losses incurred on the two stock sales can Jack and Jill deduct this year, assuming they do not have capital gains in the current or prior years?
b. Assuming they did not engage in any other property transactions this year, how much of a net capital loss will carryover to next year for Jack and Jill?
c. What would be the tax treatment for the losses if Jack and Jill reported only $60,000 of taxable income this year excluding the securities transactions?
d. What tax planning suggestions can you offer the Lanterns to increase the tax benefits of these losses?