Question

Harold owns 130 shares of stock in Becker Corporation. His adjusted basis for the stock is $215,000. On December 15, 2018, he sells the stock for $180,000. He purchases 195 shares of Becker Corporation stock on January 12, 2019, for $230,100. a. What are Harold's realized and recognized gain or loss on the sale? b. What is Harold's adjusted basis for the 195 shares purchased on January 12, 2019? c. How would your answers in (a) and (b) change if he purchased only 70 shares for $72.800 in January? (Round any percentage computation to 2 decimal places. Round other computations to the nearest whole dollar value.) (For all requirements, if no gain or loss is recognized, select "No gain/loss".) aces a. Realized loss Recognized gain b. Adjusted basis of shares c. Realized loss Realized loss Adjusted basis of shares

Answer 1

Answer-a:

Realized loss = $180,000 - $215,000 = ($35,000)

The loss is recognised because of the wash sale rule.

A wash sale occurs when an investor sells or trades a security at a loss, and within 30 days before or after, buys another one that is substantially similar.

The wash-sale rule prevents taxpayers from deducting a capital loss on the sale against the capital gain.

Answer-b:

Cost of 195 shares $230,100

Add: Disallowed loss 35,000

Adjusted basis for 195 shares $265,100

Answer-c:

In this case, Harold did not repurchase full 130 shares. He repurchased only 53.85% (i.e.70/130 × 100) of shares sold.

So, of the disallowed loss of $35,000:-

53.85% of $35,000 i.e. $18,846 is disallowed

46.15% of $35,000 i.e. $16,154 is allowed

Hence, $18,846 disallowed is added to the basis