Final answer:
The student's question pertains to calculating the capital loss on stocks sold that were received as a gift. Since the stocks were purchased by the uncle at $12 per share and sold by Lynnette at $5 per share, and held for over a year, the correct answer is a $7,000 long-term capital loss, which is option D.
Step-by-step explanation:
Understanding Stock Transactions and Capital Loss
Lynnette Swann received 1,000 shares of stock from her uncle as a gift, which he originally purchased for $12 per share. At the time of the gift, the fair market value was $9 per share. Later, Lynnette sold the stock for $5 per share. To calculate the capital loss, we need to consider the original purchase price and the sale price. As the stocks were held for more than a year (given that the uncle held them for eight years), the loss is considered a long-term capital loss.
The loss can be calculated as such: 1,000 shares * ($12 original purchase price - $5 sale price) = $7,000. This represents the decrease in value from the original purchase price to the sale price. Therefore, Lynnette incurred a $7,000 long-term capital loss.
Option D, a $7,000 long-term capital loss, is the correct answer because the shares were held for more than a year before being sold by Lynnette, and the loss amount corresponds to the decrease in value based on the original purchase price by Joseph Green.