Other Nonrecognition Transactions

Question 1

Which items does wash sales apply to?

Answer 1

Sale of stock or securities.

Question 2

What is wash sales?

Answer 2

The realized loss is disallowed (not recognized) if TP acquires substantially identical stock or securities within 30 days before or after the date of sales (61 days window).

Question 3

What happens to the realized loss under wash sales?

Answer 3

Deferred.

Question 4

Wash sales: what is the basis of the newly acquired stock?

Answer 4

Cost + disallowed loss.

Question 5

Wash sales: what is the holding period of the new stock?

Answer 5

The holding period of the old stock/securities.

Question 6

Related-party losses: What is the treatment of the realized loss?

Answer 6

Not recognized.

Question 7

Who is related parties?

Answer 7

Spouse.
Descendants: children, grandchildren, great-grandchildren etc.
Ancestors: parents, grandparents, great-grandparents, etc.
Siblings: brothers, sisters, including half.

Question 8

Is in-laws related party? Aunts and uncles, cousins?

Answer 8

No, but they are eligible to be claimed as a dependent.

No.

Question 9

Related-party loss: what is the amount of disallowed loss called?

Answer 9

A right of offset.

Question 10

Related-party loss: What does a right of offset do?

Answer 10

Can be used to offset any gain recognized when the current owner disposes of the property in the future (unless the property was personal use property to the original seller).

Question 11

Related-party loss: Can a right of offset create a loss if it’s larger than the gain?

Answer 11

No. Can only reduce a gain to zero.

Question 12

Related-party loss: What is the holding period of the new item? Does the holding period of the original buyer included in the holding period of the seller?

Answer 12

The date of purchase.

No.

Question 13

Who is the related parties for corporations? Partnership?

Answer 13

C: A more than 50% shareholders.
P: A partner that owns more than 50% of the capital or profits interest of the partnership.

Question 14

Related-party loss: ex: Fay sold 100 shares to her son for $11,000. Fay originally paid $15,000. Son sold it to unrelated party for $16,000. What amount of gain the son report?

Answer 14

Fay: Amount realized (11,000) - Adjusted basis (15,000) = Realized loss (4,000). Therefore, recognized loss = $0.
Son: Amount realized (16,000) - Adjusted basis (11,000) = Realized gain (5,000).

Son can use the entire 4,000 (a right of offset). 5,000-4,000=1,000 (recognized gain).

Question 15

Sale of a principal residence: Maximum amount an individual can exclude?

Answer 15

$250,000.

Question 16

What is a principal residence?

Answer 16

(1) Owned or (2) occupied as a principal residence for at least 2-5 yrs before the disposition.

Question 17

Sale of a principal residence: An example of the exception to this rule?

Answer 17

Change of employment (exclusion is prorated).

Question 18

Sale of a principal residence: Requirement for married couples filing jointly? Maximum exclusions amount?

Answer 18

*One meets the ownership requirement.
*Both meet the use requirement.
$500,000.

Question 19

Sale of a principal residence: how often this exclusion can be apply?

Answer 19

Only one sale or exchange every 2 years.

Question 20

Formula for recognized income under installment method?

Answer 20

Cash collected x (gross profit / contracted price) = Recognized income.