ExpertEasy1 markMultiple Choice
CPA · Question 46 · Area I: Individual Compliance and Planning
A taxpayer sells 100 shares of Stock X for a loss of $5,000 on December 15, Year 1. On January 5, Year 2, the taxpayer purchases 100 shares of Stock X. What is the tax treatment of the loss in Year 1?
A taxpayer sells 100 shares of Stock X for a loss of $5,000 on December 15, Year 1. On January 5, Year 2, the taxpayer purchases 100 shares of Stock X. What is the tax treatment of the loss in Year 1?
Answer options:
A.
Loss Disallowed; Basis of new stock increased by $5,000.
B.
Loss Allowed in Year 1.
C.
Loss Disallowed; Basis of new stock is cost.
D.
Loss Deferred until Year 2.
How to approach this question
Wash Sale Rule: Loss disallowed if substantially identical security purchased within 30 days. Disallowed loss adds to basis of new stock.
Full Answer
A.Loss Disallowed; Basis of new stock increased by $5,000.✓ Correct
A
IRC §1091. The purchase on Jan 5 is within 30 days of the Dec 15 sale. The loss is disallowed and added to the basis of the replacement shares.
Common mistakes
Deducting the loss; forgetting the basis adjustment.
Practice the full CPA TCP Practice Exam 5
68 questions · hints · full answers · grading
More questions from this exam
Q01In Year 1, an executive is granted an Incentive Stock Option (ISO) to purchase 1,000 shares of co...MediumQ02A taxpayer has a $500,000 interest-free loan from their employer outstanding for the entire Year ...MediumQ03A taxpayer wants to donate stock held for 5 years to a public charity. The stock has an adjusted ...MediumQ04An individual taxpayer had an AGI of $160,000 in Year 1 and a tax liability of $30,000. In Year 2...MediumQ05A taxpayer invests $50,000 cash for a 20% interest in a partnership. The partnership takes out a ...Hard