Question

Raquel owns Pepper, Inc. stock (adjusted basis of $40,000) that she sells to Jacob, her brother, for its fair market value of $32,000. Fifteen months later, he sells it to Paula, a friend, for its fair market value of $39,000. Determine Raquel's recognized loss, Jacob's recognized gain or loss, and Paula's adjusted basis for the stock.

A. Raquel's Recognized Loss: $8,000; Jacob's Recognized Gain or Loss: $7,000 Loss; Paula's Adjusted Basis: $39,000

B. Raquel's Recognized Loss: $8,000; Jacob's Recognized Gain or Loss: $7,000 Gain; Paula's Adjusted Basis: $39,000

C. Raquel's Recognized Loss: $0; Jacob's Recognized Gain or Loss: $0; Paula's Adjusted Basis: $39,000

D. Raquel's Recognized Loss: $8,000; Jacob's Recognized Gain or Loss: $0; Paula's Adjusted Basis: $39,000

Answer 1

Raquel's recognized loss is $8,000, Jacob's recognized gain or loss is $7,000 loss, and Paula's adjusted basis for the stock is $39,000.

Step-by-step explanation:

Raquel's recognized loss can be calculated by subtracting the fair market value at the time of sale ($32,000) from her adjusted basis ($40,000), resulting in a loss of $8,000. Jacob's recognized gain or loss can be calculated by subtracting the fair market value at the time of purchase ($32,000) from the fair market value at the time of sale ($39,000), resulting in a loss of $7,000. Paula's adjusted basis for the stock is the same as the fair market value at the time of purchase ($39,000).