Question

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Three years ago, Adrian purchased 450 shares of stock in X Corp. for $89,550. On December 30 of year 4, Adrian sells the 450 shares for $85,950. (Leave no answers blank. Enter zero if applicable.)

rev: 09_14_2017_QC_CS-100066

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

b. Assume the same facts as in part (a), except that on January 20 of year 5, Adrian purchases 450 shares of X Corp. stock for $85,950. 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

a) Cost price of 450 shares of X Corp stock = $ 89550

Selling price of those 450 shares = $ 85950

Profit /Loss = Difference between selling price and cost price. A positive value indicates capital gain and a negative value indicates a capital loss. Here Selling price < Cost Price so result will be capital loss.

Assuming that Adrian has no other capital gains or losses.then total losses that Adrian can deduct on her year 4 tax return = 89550 - 85950 = $ 3600

So Adrian can deduct $3000 from her taxable income as capital losses. Remaining $ 600 she has to carry forward to next year.  

b)Assuming the facts, Adrian purchased again 450 shares for $ 85950 on Jan 20 of year 5 . That is within 30 days of sales of X corp stock hence wash sale rule applies.

Wash sale rule by IRS implies that if a taxpayer has sold his/her stocks in one financial year and incur loss but purchased identical stock within 30 days of sale, then he cannot benefit from the capital loss. The initial loss will not be allowed for that year's tax return as exempted.

So the answer for how much loss from sale on Dec 30 of year 4 is deductible on Adrian's year 4 tax return = 0.

So Adrian takes Basis adjustment in the stock purchased on Jan 20 of year 5 . That in simple words refers to when a sale is identified as wash sale, the actual losses is added to the basis of identical stock that is purchased on Jan 20.