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Under section 1211(b), noncorporate taxpayers can recognize
capital losses only to the extent of capital gains plus $3,000.7
Section 1212(b) allows noncorporate taxpayers to carry forward
unrecognized capital losses to subsequent taxable years, but it
does not allow such taxpayers to carry back unrecognized capital
losses to prior taxable years.
The Internal Revenue Code does not explicitly address the
treatment of capital losses for AMT purposes. See secs. 55-59,
and accompanying regulations.
The parties stipulated that petitioner is not a dealer and
that he exercised the ISOs as an investor. There is no dispute
that petitioner’s shares of Exodus stock are capital assets under
section 1221. Because those shares became worthless in 2001,
petitioner realized a capital loss in 2001. See sec. 165(g)(1).
Petitioner’s regular tax basis in the shares of Exodus stock was
$9,225, resulting in a realized regular capital loss of $9,225.8
7 For married individuals filing separately, $3,000 is
reduced to $1,500. Sec. 1211(b)(1). If the excess of capital
losses over capital gains is less than $3,000 (or $1,500), then
only that excess may be deducted. Sec. 1211(b)(2).
8 To avoid confusion between petitioner’s capital losses,
we shall refer to his capital loss for regular tax purposes as
his “regular capital loss”, and shall refer to his capital loss
for AMT purposes as his “AMT capital loss”.
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Last modified: May 25, 2011