This year, Jack O. Lantern incurred a $70,500 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. In December of this year, Jacks wife, Jill, also incurred a $76,200 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. Assume that they file a joint return.

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?

Total deductible loss

b. Assuming they did not engage in any other property transactions this year, how much of a net capital loss will carry over to next year for Jack and Jill?

Capital loss carryover

c. What would be the tax treatment for the losses if Jack and Jill reported only $79,250 of taxable income this year, excluding the securities transactions?

Net operating loss deduction
Capital loss carry forward