re: 2016 AICPA Released Difficult Qs – no 11- Wash Sale

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  • #201678 Reply
    Mike030882
    Participant

    I apologize if this has been posted here already.

    The following question has been giving me fits all day:

    On year 1, Janice had the following transactions in Jacky, Inc. common stock:

    Jan 1 – Purchase of 500 shares for $25

    May 12 – Sale of 500 shares for $23

    May 28 – Purchase of 250 shares for $22

    Oct 15 – Sale of 100 shares for $18

    What is Janice's deductible capital loss?

    (a) $400

    (b) $700

    (c) $1,100

    (d) $1,400

    The correct answer is (c) $1,100.

    I would greatly appreciate if someone could explain the answer prior to May 10, my REG exam date.

    Thanks.

    AUD - 90
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    #774500 Reply
    Biff-1955-Tannen
    Participant

    That's a good question, I keep getting $1,200 assuming FIFO and $900 assuming LIFO

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    #774501 Reply
    Anonymous
    Inactive

    the 500 sold have a disallowed loss of ($500) because they were then repurchased within 30 days before or after the sale on the 12th at a loss.

    new basis = Purchase price of new + loss disallowed

    #774502 Reply
    ABTX411
    Participant

    The loss on 5/12 is $1,000. On 5/28, you purchase 1/2 of the securities you sold on 5/12, so you have a wash sale, and you have to defer $500 (one half) of the loss by adding the $500 to the basis of the shares purchased on 5/28: $500 deferal / 250 shares = $2/share + $22/share paid = $24/share basis. When you sell in October, your loss is 100 (18-24) = 600. Add this to the $500 loss that was allowed on 5/12, and you get $1,100 for the year.

    #774503 Reply
    Biff-1955-Tannen
    Participant

    @ABTX411 nice. I didn't know you defer the loss into the next purchase basis. Thanks

    AUD - 93
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    FAR - 83
    REG - 84
    Nobody calls me chicken
    #774504 Reply
    Yolonge
    Participant

    Was not sure for the second part, I wanted to put something but only figured out $500 deductible portion.

    This will be helpful for my 99.9% reg retake!

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    #774505 Reply
    Anonymous
    Inactive

    @mhei8116

    250 share bought for $22/ share = $5500
    +loss disallowed =$500
    so basis of 250 shares =6000
    rate per share =6000/250=$24

    now 100 shares sold at $18/share =1800
    less basis 100*24 =2400
    loss =600
    so total allowed capital loss =500+600=1100

    #774506 Reply
    Mike030882
    Participant

    Thanks guys!!

    I knew you had to defer the loss, since a “replacement” batch was either purchased or sold within 30 days of the sale. But, it didn't occur to me to keep a rate per share tally going–6000 new basis / 250 new total shares of stock. I was just trying to factor the relationship between the 250 repurchased and the 100 later sold in October.

    This explanation reminds me of how you have to update the basis per stock when you get a stock split. Maybe I'm getting ahead of myself.

    Anyway, I'm so pleased to have this problem explained. Good luck all.

    AUD - 90
    BEC - 79
    FAR - 77
    REG - 77
    They don't trust JUST ANYBODY to count beans
    #2978291 Reply
    se7en.14
    Participant

    is it a rule that you have to defer 50% of the loss from wash sale? thanks.

    .
    #2978384 Reply
    monikerncmonikernc
    Participant

    No. The rule is you have to prorate the loss based on the number of shares repurchased within 30 days of a sale of the same type securities. In this case the 50% is based on 250 repurchased/500 sold. Follow Anonymous’ example above.

    AUD - 93
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