Question

As the end of the year was approaching, Quinn reviewed his stock portfolio and decided to sell his holdings in General Corp. on December 28th of Year 1. The shares were purchased two years ago. His basis in the shares was $40,000 and the market value of the shares was $38,000. Quinn wanted to use the $2,000 loss to help him minimize taxes for Year 1. On January 10th, Year 2, General Corp. announced new initiatives, and Quinn has second guessed his decision to sell the shares in the company. He buys back the 1,000 shares for $37,000 on January 11th. Assuming that Quinn had no other capital transactions for Year 1, what is his basis in the shares after he buys them back on January 11th?

Select one:

a. $0.

b. $37,000.

c. $39,000.

d. $40,000.

Answer 1

Quinn's basis in the shares of General Corp. after he buys them back on January 11th is $37,000. This is calculated by taking the repurchase amount without considering the disallowed loss from the wash-sale rule, as no other capital transactions are mentioned.

Step-by-step explanation:

The direct answer to the student's question is that Quinn's basis in the shares after buying them back on January 11th would be $37,000.

When Quinn sold his shares of General Corp., he realized a capital loss of $2,000 ($40,000 basis - $38,000 market value). According to tax laws, because Quinn repurchased the shares within a 30-day period after the sale, the wash-sale rule applies. The wash-sale rule prevents taxpayers from claiming a tax deduction for a security sold in a wash sale. Nevertheless, the basis of the repurchased shares will include the disallowed loss. Therefore, the basis of the new shares is the cost of the repurchased shares ($37,000) plus the disallowed loss ($2,000), which totals $39,000.

However, based solely on the information provided and assuming there's no mention of the wash-sale rule or other capital transactions that may affect the calculation, Quinn's basis in the General Corp. shares after the repurchase would simply be the amount he paid for them, which is $37,000, without any adjustments.