Question

41. In January, Lance sold stock with a cost basis of 526,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale. Five months later, James sold the same stock through his broker for $27,000. What is the tax effect of these transactions? a. Disallowed loss to James of $2,000; gain to Lance of $1,000 b. Disallowed loss to Lance of $2,000; gain to James of $3.000. c. Deductible loss to Lance of $2,000; gain to James of $3,000. d. Disallowed loss to Lance of $2,000, gain to James of $1,000. e. None of these 42. Nikeya sells land (adjusted basis of S120,000) to her adultson, Shamed, for its end value of SOS.com Which

Answer 1

TAX EFFECT OF GIVEN TRASACTIONS

The correct option is (d ) - Disallowed loss to lance of $2000, Gain to james $1000.

Lance realised a loss of $2000 ( $26000 - $24000 ) need to be disallowed

And

James realised a gain of $3000 ( $27000 - $24000 ), but james may reduce his gain of $3000 by disallowed loss of $2000 to lance. As a result,

james recognized a gain of $1000.

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