Question

• For 2020, Heidi, who is single has properly determined that her taxable income is $81,800, including $1,200 of unrecaptured § 1250 gain and $5,000 of 0%/15%/20% gain. Compute Heidi's tax liability (hint use capital gain table)
• Mort owns 500 shares of Pear, Inc. stock with an adjusted basis of $22,000. On July 28, 2020, he sells 100 shares for $3,000. On August 16, 2020, he purchases another 100 shares for $3,400. What are the tax consequences of these transactions?

Answer 1

1) Heidi is single so will file a single return. Taxable income is $81,800.

+Tax rate for unrecaptures gain as per Section 1250 is 25%.

Also, Tax rate on long term capital gain on $5,000 will be 15% since her taxable income is more than $40,000 and less than $441,451.

Tax liability on Unrecaptires gain = 1200 X 25%

$300

Tax liability on gain of $5,000 = 5000 15%

$750

Total tax liability = $300 + $750

= $1050

2) Mort has 500 shares of Pear Inc.stock with an adjusted basis of $22,000.

Average price per share = 22,000/500

= $44

He sold 100 shares on July 28, 2020 for $3,000

Adjusted cost of 100 shares = 44 X $100

= $4,400

Loss on sale of shares = $4,400 - $3,000

= $1,400

Mort could claim this loss of $1,400 in his return. However, on August 16, 2020, he again purchased 100 shares at $3,400.

Since he purchased the same stock within 30 days of sale, the loss of $1,400 cannot be claimed as loss in his return because it is 'substantially shares' that generated the loss. This is known as 'wash sale'.