Three years ago, Adrian purchased 505 shares of stock in X Corp. for $67,165. On

Question

Three years ago, Adrian purchased 505 shares of stock in X Corp. for $67,165. On December 30 of year 4, Adrian sells the 505 shares for $59,590.

a. Assuming Adrian has no other capital gains or losses, how much of the loss is Adrian able to deduct on her year 4 tax return?

b. Assume the same facts as in part (a), except that on January 20 of year 5, Adrian purchases 505 shares of X Corp. stock for $59,590. How much loss from the sale on December 30 of year 4 is deductible on Adrian’s year 4 tax return? What basis does Adrian take in the stock purchased on January 20 of year 5?

Explanation / Answer

a. Adrain has a $7,575 long-term capital loss. She can offset $3,000 of the capital loss against ordinary income. The remaining $4,575 of the capital loss is carried forward indefinitely.

b. Adrain has a realized $7,575 long-term capital loss on the sale of the shares. However, she has purchased sustainably identical stock within the 61 days period (30 days before the sale until 30 days after the sale); therefore, her loss is limited by the wash sale rules. Since Adrian purchased shares the loss is not currently recognized. The loss is added to the basis of the new shares purchased. Thus, the basis of the new shares of the stock is $67,165 (i.e. $59,590 purchase price plus the unrecognized loss of $7,575)

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