Discuss a qualifying stock redemption for tax purposes

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Julio is in the 33% tax bracket. He acquired 2,000 shares of stock in Gray Corporation seven years ago at a cost of $50 per share. In the current year, Julio received a payment of $150,000 from Gray Corporation in exchange for 1,000 of his shares in Gray. Gray has E&P of $1 million.

Assume in in the above transaction, Julio has a capital loss carryover of $50,000 in the current tax year. Julio has no other capital gain transactions during the year. What amount of the Capital Loss may Julio deduct in the current year in the following situations?

a. The payment from Gray Corporation is a qualifying stock redemption for tax purposes.

b. The payment rom Gray is a nonqualified stock redemption for tax purposes.

c. If Julio had the flexibility to structure the transaction as described in either part (a) or (b), which form would he choose?

Reference no: EM131782452

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