Question

Lawson purchased 100 shares of Jerzen stock for $6 per share in year 1. On July 1, year 3, Lawson sold the 100 shares for $4 per share. On July 16, year 3, Bo repurchased 25 shares for $5 per share. In computing Bo's year 3 taxable income, he ay deduct a capital loss in the amount of? Help, been stuck on this question for a while.

Answer 1

Wash sale loss is an exception when capital loss is realized, but not recognized.

A wash sale loss exists when a security is sold for a loss and is repurchased within 30 days before or after the sale date. The loss may not be deducted, but is added to the basis of the repurchased asset.

Loss on sale of shares = 100 * ($6 - $4) = $200

As 25 shares (which is 25% of the shares sold) are repurchased before 30 days after the sale date, only 75% of the losses are allowed to be recognized.

Lawson may deduct capital loss in the amount of $200 * 75% = $150