Question

On January 18, 2016, Martha purchased 200 shares of Blue Corporation stock for $2,000. On November 11, 2017, she sold short 200 shares of Blue Corporation stock which she borrowed from her broker for $2,300. On February 10, 2018, Martha closed the short sale by delivering the 200 shares of Blue Corporation stock which she had acquired in 2015. On that date, Blue Corporation stock had a market price of $4 per share. What is Martha’s recognized gain or loss and its character in 2017? In 2018?

Answer 1

According to the given question, Martha disclosed the short sale on February 10 2018 which she should disclose at the time of sale i.e. on November 11 2017.

On her 2017 return of tax, the gain will be:

Gain on sale of stock = sale price - purchase price

Gain on sale of stock = 2300 - 2000

Gain on sale of stock = $ 300

As in 2018 return of tax, Martha will face a capital loss because the market value of holding shares is reduced as it was on the date of sale.

Loss = 2300 - (200*4)

Loss = 2300 - 800

Loss = $ 1500

answered by: anonymous