Question

1, Problem 7-62 (LO 7-4)

Anwer owns a rental home and is involved in maintaining it and approving renters. During the year he has a net loss of $17,400 from renting the home. His other sources of income during the year are a salary of $112,250 and $18,700 of long-term capital gains.

How much of Anwer’s $17,400 rental loss can he deduct currently if he has no sources of passive income?

deductible rental loss

2, Problem 7-51 (LO 7-2)

Three years ago, Adrian purchased 565 shares of stock in X Corp. for $86,445. On December 30 of year 4, Adrian sells the 565 shares for $75,145. (Leave no answers blank. Enter zero if applicable. Loss amounts should be indicated with a minus sign.)

Problem 7-51 Part-b

b. Assuming Adrian has no other capital gains or losses, except that on January 20 of year 5, Adrian purchases 565 shares of X Corp. stock for $75,145. 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?

deductible loss
basis

      

Answer 1

Solution to Problem 1

Anwar's adjusted income(AGI) = salary + long-term capital gains

=$112,250 + $18,700

=$130,950

This implies that Anwar's AGI is under the threshold of 150,000.

The maximum amount to be deducted before phase-out =$25,000

The phase-out of maximum deduction = (AG- 100,000) *0.5

= ($130,950 - 100,000) *0.5

=$15,475

Therefore, the phase-out of maximum deduction of rent loss is $15,475.

The current year's maximum deduction of rent loss equals to maximum deduction before phase-out minus phase-out of maximum deduction, which is,

$25,000 - $15,475 =$9,525

Therefore, the current year's maximum rent deduction is $9,525.

The current year's rent loss is $17,400. However, up to $9,525 of the loss will be the rent loss deduction. The passive loss that would be carried forward is $7,875($17,400 - $9,525).

Solution to Problem 2

Purchase price of X corp. Shares = $86,445

Sale price of shares =$75,145

Long term capital loss =($11,300)

A taxpayer can deduct a net capital loss of $3,000 against ordinary income; that is, a taxpayer can have a net capital loss of $3,000. Adrian had a $4,000 net capital loss - $3,000 is offset with ordinary income; theremaining $8,300 in capital losses is carried forward indefinitely.

Part (B)

Code Section 1091 disallows losses from so called wash sales; when a taxpayer sells shares of stock at a loss and then, within a short period of time following the sale, the taxpayer purchases shares of stock in the same corporation thinking the stock price will increase.The initial loss will not be allowed since the shares were repurchased within the limited time interval.

Amount paid to acquire the stock in year 5 = $75,145

Disallowed loss = $11,300

Basis in the stock purchased in year 5 = $86,445

Code Section 1091(d) essentially adds the disallowed loss to the basis of the acquired stock: