Question

Three years ago, Adrian purchased 100 shares of stock in X Corp. for $10,000. On December 30 of year 4, Adrian sells the 100 shares for $6,000. 1. Assume Adrian has no other capital gains or losses, how much of the loss is Adrian able to deduct on her year 4 tax return? 2. Assume Adrian has no other capital gains or losses, except that on January 20 of year 5, Adrian purchases 100 shares of X Corp. stock for $6,000. How much loss from the sale on December 30 of year 4 is deductible on Adrian’s year 4 tax return? What basis does Adrian take in the stock purchased on January 20 of year 5?

Answer 1

1. Assume Adrian has no other capital gains or losses, how much of the loss is Adrian able to deduct on her year 4 tax return?

• Adrian's loss is $4,000, and depending on whether Adrian is married or not, she will be able to deduct up to $3,000 (if married) during the current tax year and carry forward the remaining $1,000 loss. If she is single, then she can only deduct $1,500 per year and must carry forward $2,500.

2. Assume Adrian has no other capital gains or losses, except that on January 20 of year 5, Adrian purchases 100 shares of X Corp. stock for $6,000. How much loss from the sale on December 30 of year 4 is deductible on Adrian’s year 4 tax return? What basis does Adrian take in the stock purchased on January 20 of year 5?

• She cannot deduct any losses due to the wash sale rule, that states that her loss will be added to the basis of the new stocks that she purchased. The wash sale rule states that if you purchase the same stocks within a 60 day period, you cannot recognize any loss on any previous sale. Instead, her basis on the stocks will be $6,000 + $4,000 = $10,000.

Step-by-step explanation: