Question

Regarding the recognition of realized loss on stock, which of the following statements is correct?

A) If Drew sells the stock, she can recognize the realized loss of $7,000.
B) If Drew gives the stock to her niece, the niece's adjusted basis for loss will be $15,000.
C) If Drew sells the stock, the realized loss will benefit neither Drew nor her niece.
D) If Drew gives the stock to a qualified charitable organization, the realized loss will benefit the organization.

Answer 1

The correct answer is A) If Drew sells the stock, she can recognize the realized loss of $7,000, as losses are recognized when the stock is sold for less than the purchase price.

Step-by-step explanation:

The correct statement regarding the recognition of a realized loss on stock for Drew is option A) If Drew sells the stock, she can recognize the realized loss of $7,000. Given the information provided on capital gains and losses, if Drew sells the stock for less than the cost basis, she realizes a loss that she can recognize for tax purposes. However, if Drew gifts the stock to her niece, the niece will have a basis for gain being the same as Drew's, but for loss, it would be the lower of Drew's basis or the fair market value at the time of the gift. Therefore, option B is incorrect. Option C is also incorrect because if Drew sells the stock, the realized loss can be used to offset capital gains and if there are no capital gains, up to $3,000 can be used to offset ordinary income on Drew's tax return. Lastly, option D is incorrect because if she gives the stock to a charitable organization, the organization's basis in the stock would also depend on whether there's a gain or loss and does not 'benefit' from her realized loss.