ExpertHard1 markMultiple Choice
CPA · Question 20 · Area III: Property Transactions
In the current year, a taxpayer sold 100 shares of Tech Corp stock for $4,000. The taxpayer's basis in the stock was $5,000. Two weeks later, the taxpayer purchased 50 shares of Tech Corp stock for $2,200. What is the taxpayer's recognized loss on the sale and the basis of the new 50 shares?
In the current year, a taxpayer sold 100 shares of Tech Corp stock for $4,000. The taxpayer's basis in the stock was $5,000. Two weeks later, the taxpayer purchased 50 shares of Tech Corp stock for $2,200. What is the taxpayer's recognized loss on the sale and the basis of the new 50 shares?
Answer options:
A.
Recognized Loss: $500; New Basis: $2,700
B.
Recognized Loss: $1,000; New Basis: $2,200
C.
Recognized Loss: $0; New Basis: $3,200
D.
Recognized Loss: $500; New Basis: $2,200
How to approach this question
Step 1: Calculate realized loss ($1,000). Step 2: Determine wash sale portion (50/100 shares = 50%). Step 3: Disallow that portion ($500). Step 4: Add disallowed amount to new basis.
Full Answer
A.Recognized Loss: $500; New Basis: $2,700✓ Correct
Under IRC §1091 (Wash Sales), a loss is disallowed if substantially identical stock is purchased within 30 days. Here, 50 shares were repurchased, so the loss on 50 shares is disallowed. Realized loss per share = ($5,000 - $4,000)/100 = $10/share. Disallowed loss = 50 * $10 = $500. Recognized loss = $1,000 - $500 = $500. The basis of the new shares is Cost ($2,200) + Disallowed Loss ($500) = $2,700.
Common mistakes
Disallowing the entire loss even though only partial repurchase occurred.
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