ExpertHard1 markMultiple Choice
CPA · Question 19 · Area III: Property Transactions
A taxpayer purchased 100 shares of TechCorp stock for $5,000 on January 1. On December 15 of the same year, the taxpayer sold the 100 shares for $3,000. On December 20, the taxpayer purchased 50 shares of TechCorp stock for $1,600. What is the recognized loss on the December 15 sale and the basis of the new 50 shares?
A taxpayer purchased 100 shares of TechCorp stock for $5,000 on January 1. On December 15 of the same year, the taxpayer sold the 100 shares for $3,000. On December 20, the taxpayer purchased 50 shares of TechCorp stock for $1,600. What is the recognized loss on the December 15 sale and the basis of the new 50 shares?
Answer options:
A.
Recognized Loss: $2,000; Basis: $1,600
B.
Recognized Loss: $1,000; Basis: $2,600
C.
Recognized Loss: $0; Basis: $3,600
D.
Recognized Loss: $1,000; Basis: $1,600
How to approach this question
1. Calculate total realized loss ($2,000). 2. Determine wash sale portion: 50 shares repurchased / 100 sold = 50% wash. 3. Disallow 50% of loss ($1,000). 4. Add disallowed loss to cost of new shares ($1,600 + $1,000).
Full Answer
B.Recognized Loss: $1,000; Basis: $2,600✓ Correct
B
Realized loss = $5,000 - $3,000 = $2,000 ($20/share). Since 50 shares were repurchased within 30 days, 50 shares' worth of loss is disallowed under wash sale rules (IRC §1091). Disallowed loss = 50 * $20 = $1,000. Recognized loss = $2,000 - $1,000 = $1,000. Basis of new shares = Cost ($1,600) + Disallowed Loss ($1,000) = $2,600.
Common mistakes
Disallowing the entire loss even though only a portion was repurchased.
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