Problem: Four years ago, Nelson purchased stock in Black Corporation for $37,000. The stock has a current value of $5,000. Nelson needs to decide which of the following alternatives to pursue. Determine the tax effect of each.
1. Without selling the stock, Nelson deducts $32,000 for the partial worthlessness of Black Corporation investment.
2. Nelson sells the stock to his aunt fo $5,000 and deducts a $32,000 long-term capital loss.
3. Nelson sells the stock to a third party and deducts an ordinary loss.
4. Nelson sells the stock to his mother for $5,000 and deducts a $32,000 long term capital loss.
5. Nelson sells the stock to a third party and deducts a $32,000 long term capital loss.