Question

Ms. Fresh bought 1,000 shares of Ibis Corporation stock for $5,000 on January 15, 2015. On December 31, 2017 she sold all 1,000 shares of her Ibis stock for $4,500. Based on a hot tip from her friend, she bought 1,000 shares of Ibis stock on January 23, 2018 for $3,000. What is Ms. Fresh's recognized loss on her 2017 sale and what is her basis in her 1,000 shares purchased in 2018?

A) $-0- LTCL and $3,500 basis.
B) $200 LTCL and $3,300 basis.
C) $300 LTCL and $3,200 basis.
D) $400 LTCL and $3,100 basis.
E) $500 LTCL and $3,000 basis.

Answer 1

Ms. Fresh's recognized loss on her 2017 sale is $0 due to the wash-sale rule, and the basis in her 1,000 shares purchased in 2018 is $3,500.

Step-by-step explanation:

Ms. Fresh's recognized loss on the sale in 2017 is the difference between her original purchase price for the shares and the sales price when she sold them. She bought the shares for $5,000 ($5 per share for 1,000 shares) and sold them for $4,500. Because she repurchased the shares within 30 days, the wash-sale rule applies, meaning that her loss is not recognized for tax purposes. The basis for the newly purchased shares includes the disallowed loss. Therefore, the new basis is the purchase price of the new shares plus the disallowed loss from the sale. She bought the new shares for $3,000, so her basis in the new shares is $3,500 ($3,000 plus the $500 disallowed loss).

s. Fresh's recognized loss on her 2017 sale can be calculated by subtracting the sale price ($4,500) from her original cost basis ($5,000). The loss is $5,000 - $4,500 = $500. Her basis in the 1,000 shares purchased in 2018 is the purchase price ($3,000) plus any transaction fees. Since no fees are mentioned in the question, her basis in the 2018 shares is $3,000.