Question

Three years ago, Adrian purchased 250 shares of stock in X Corp. for $47,500. On December 30 of year 4, Adrian sells the 250 shares for $44,250.

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 250 shares of X Corp. stock for $44,250. 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.

Adrian's capital loss = $47,500 - $44,250 = $3,250

Maximum deduction for capital loss allowed in a year = $3,000

Therefore, Adrian will be able to deduct $3,000 only on her year 4 tax return.

The remaining $250 can be carried forward to be deducted in future years up to 4 years.

b.

Since Adrian purchased the 250 shares for $44,250 again on January 20 of year 5, there would be no deductible loss.

Therefore, the loss to be deducted on year 4 tax return is NIL.

Adrain's basis in the stock purchases will be $47,500 because the loss on sale was not allowed to be deducted.