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Smith, an individual calendar-year taxpayer, purchased 100 shares of Core Co. common stock for $15,000 on December 15, Year 1, and an additional 100 shares for $13,000 on December 30, Year 1. On January 3, Year 2, Smith sold the shares purchased on December 15, Year 1, for $13,000. What amount of loss from the sale of Core's stock is deductible on Smith's Year 1 and Year 2 income tax returns

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Parrain

Answer:

  • Year 1 = $0
  • Year 2 = $0

Explanation:

Stock was sold in year 2 so there is no loss that would be deductible from Smith's Year 1 income tax returns.

In year 2, the stock was sold for $13,000 even though it was bought for $15,000. There is therefore a loss of $2,000.

This $2,000 results from a wash sale however so it will not be deductible.  A wash sale is used to describe a scenario where stock from one transaction is sold but was the investor buys that same stock in another transaction 30 days before or after they sold the former.

As Smith purchased another $13,000 worth of stock merely 16 days before he sold the first batch, this is a wash sale and its loss is not deductible.