Question

5. C purchase XYZ Company stock several years ago for $50,000. Unfortunately, the stock had declined in value. Therefore, C decided to sell the stock on December 15, 2020 for $35,000, incurring a loss of ($15,000). C had other gains of $40,000 in 2020 and felt he would like to offset those gains with the loss on XYZ Company stock. However, after reading some very favorable news about XYZ Company in early January, 2021, C decided to buy back XYZ Company stock. So on January 8, 2021 C bought back the stock for $36,000.

How much of the loss may C deduct on his 2020 return?

What is C’s basis in the XYZ Company stock that was purchased on January 8, 2021?

Answer 1

How much of the loss may C deduct on his 2020 return?

As per Wash sale rules of IRS an investor who buy backs the security within 30 days of sale shall not be allowed to deduct the loss incurred on the sale of security.

In the Current scenario, C sold the stock on Dec 15 2020 and then bought the stock again on Jan 8 i.e. within 30 days. Hence C will not be allowed to write off any loss on his 2020 return.

What is C’s basis in the XYZ Company stock that was purchased on January 8, 2021?

If there is wash sale then loss on sale of such stock is added to the cost of stock acquired.

So XYZ Company Stock Price will be= Purchase Price+ Loss Disallowed

=36000+15000

=$51000