1. On March 15, 2016, Chelsea, who is single, purchased stock in Paint It Purple Corporation (the stock is 1244 small business stock) for $115,000. On October 31, 2019, Chelsea sold the stock for $58,000. How is the loss treated for tax purposes? (Hint: What is the character of the loss?)

2. Larry sells a rental house for $162,000 in 2019 that has an adjusted basis of $115,000. During the years of his ownership, $68,000 of losses have been incurred that were suspended under the passive activity loss rules. What is the effect on his taxable income in 2019 of this sale?