Question

Smith, an individual calendar-year taxpayer, purchased 100 shares of Core Co. common stock for $15,000 on December 15, 2019, and an additional 100 shares for $13,000 on December 30, 2019. On January 3, 2020, Smith sold the shares purchased on December 15, 2019, for $13,000.

What amount of loss from the sale of Core's stock is deductible on Smith's 2019 and 2020 income tax returns?

1) $0 $0
2) $0 $2,000
3) $1,000 $1,000
4) $2,000 $0

Answer 1

Smith's deductible capital loss is $2,000 for the 2020 tax year, and there is no deductible loss for 2019. The loss is the difference between the purchase and selling price of the stock sold in 2020.

Step-by-step explanation:

The question relates to the calculation of a deductible capital loss from the sale of stock for tax purposes. Smith purchased 100 shares of Core Co. stock for $15,000 on December 15, 2019, and sold them for $13,000 on January 3, 2020. The loss realized on this transaction would be the difference between the purchase price ($15,000) and the selling price ($13,000), which is $2,000.

Since the sale occurred in 2020, the deductible capital loss of $2,000 would apply to the 2020 income tax return. There would be no deductible loss for the 2019 tax return, as the sale did not occur in that year. Thus, the correct answer is option 4) $2,000 $0, meaning a $2,000 deductible loss in 2020 and $0 in 2019.