Smith who is in the business of buying and selling shares/stock, sells 100 share

Question

Smith who is in the business of buying and selling shares/stock, sells 100 shares of Comcast stock for $20,000. His adjusted basis for the stock is $24,000. Smith has owned the stock for three years. Smith decides to repurchase 80 shares of Comcast stock for $19,200 twenty one days after selling the 100 shares.

a) Calculate Smith’s recognized gain or loss and his basis for the 80 shares.

b) How would your answers to Part A change if the repurchase cost of the 80 shares was $28,000

c) How would your answer to Parts A and B differ if Smith was not in the business of buying and selling shares/stock?

Explanation / Answer

Sell value of Stock of 100 shares = $ 20000 I.e sell value per share = $ 200 Purchase cost earlier of 100 shares = $ 24000 Purchase cost per share = $ 240 Loss on First instance of Sale of Share = $ 24000- $ 20000= $ 4000 Loss per share = $ 240-$ 200= $ 40 Repurchase cost of 80 Shares = $ 19200 per share cost = $ 19200/80 = $ 240 Repurchase cost of 80 Shares = $ 28000 per share cost = $ 28000/80 = $ 350 1) Realized loss on repurchase of 80 shares = ($240-$ 200)X 80 = $ 3200 2) Realized loss on repurchase of 80 shares = ($350-$ 200)X 80 = $ 12000 3) if smith is in not in the business of selling of shares, then acquistion cost of shares will increase by $ 40 or $ 150 per share.

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