Question

C purchase XYZ Company stock several years ago for $50,000. Unfortunately, the stock had declined in value. Therefore, C decided to sell the stock on December 15, 2020 for $35,000, incurring a loss of ($15,000). C had other gains of $40,000 in 2020 and felt he would like to offset those gains with the loss on XYZ Company stock. However, after reading some very favorable news about XYZ Company in early January, 2021, C decided to buy back XYZ Company stock. So on January 8, 2021 C bought back the stock for $36,000.

How much of the loss may C deduct on his 2020 return?

What is C’s basis in the XYZ Company stock that was purchased on January 8, 2021?

Answer 1

1)

SInce C has purchased XYZ co. stock several years ago, such loss arising on sale of XYZ stock ie, $50000--$35000=$15000(loss) can be set off against the gains $40000 in 2020, Assuming that the gains are allowed to set off such losses.

At the time of claiming deduction, only loss on sale of stock can be claimed as deduction but not the loss on purchase (extra amount paid to purchase same company stock when he sold stock of XYZ previously).

therefore, C can claim deduction of $15000 in the year 2020. he cannot claim $1000 paid in extra to purchase stock and $1000 has to be treated as Aquisition cost of security.

2)

C's Basis in XYZ company is that he will be a stock holder as same as other stock holders. the basis of purchase of stock again by him is the positive performance of the company during the year after he sold such stock previously, which influenced him to purchase stock again. This time his cost of acquisition of such stock Will be $36000 and he can deduct such cost when he sells in future from the gains.

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