Question

Barbara owns 100 shares of Bond Corporation stock with a basis of​ $40,000. Barbara receives two liquidating​ distributions, including​ $16,000 paid last year and​ $20,000 paid in the current year. An additional distribution of an undetermined amount is expected next year. On last​ year's tax​ return, Barbara can recognize a loss of ________

Answer 1

Barbara cannot recognize a loss on her tax return for last year's liquidating distribution, as the total distributions received so far ($36,000) are less than her basis ($40,000) in the Bond Corporation stock.

Step-by-step explanation:

The student's question pertains to recognizing a loss on liquidating distributions from a stock investment in the context of a tax return. Barbara's original investment in Bond Corporation stock has a basis of $40,000. She received distributions totaling $36,000 ($16,000 last year and $20,000 this year) against her initial investment, with an additional undetermined amount expected next year. To determine the recognized loss on last year's tax return, we should consider only the distribution received in the last year. Since the basis of the stock (the original investment) is greater than the sum of distributions received thus far, a recognition of loss on last year's tax return would not occur until more than the basis amount has been received in distributions.