Question

Three years ago, Adrian purchased 565 shares of stock in X Corp. for $86,445. On December 30 of year 4, Adrian sells the 565 shares for $75,145.

a. Assuming Adrian has no other capital gains or losses, how much of the loss is Adrian able to deduct on her year 4 tax return?

b. Assume the same facts as in part (a), except that on January 20 of year 5, Adrian purchases 565 shares of X Corp. stock for $75,145. How much loss from the sale on December 30 of year 4 is deductible on Adrian’s year 4 tax return? What basis does Adrian take in the stock purchased on January 20 of year 5?

  

Answer 1

a)A long-term capital loss of $11300($86445-$75145) is realised on the sale by Adrian.The limit of offsetting the capital loss per year is $3000,which she can offset against her ordinary income currently. The remaining loss of $8300($11300-$3000)will be carried forward indefinitely.

b)A long-term capital loss of $11300($86445-$75145) is realised on the sale by Adrian.But as the purchase of the substantially identical stock has been made by Adrian within the period of 61 days(which is 30days before the sale and 30 days from the sale),so the wash sales rule come into picture, and hence limits her loss. As 565 shares were purchased by Adrian, currently, the loss is not recognized. The basis of new shares purchased is added with the loss. Thus, the basis of the 564 new shares of stock is $86445.($75145+$11300)