Question 1. On January 15 of the current taxable year, Merle sold stock wit

1. On January 15 of the current taxable year, Merle sold stock with a cost of $40,000 to his brother Ned for $25,000, its fair market value. On June 21, Ned sold the stock to a friend for $26,000.

a. What are the tax consequences to Merle and Ned?

b. Would Ned recognize any gain if he sold the stock for $41,000?

2. Monica sells a parcel of land to her son, Elbert, for $90,000. Monica’s adjusted basis is $100,000. Three years later, Elbert gives the land to his fiancée, Karen. At that date, the land is worth $104,000. No gift tax is paid. Since Elbert is going to be stationed in the U.S. Army in Germany for 3 years, they do not plan on being married until his tour is completed. Six months after receiving the land, Karen sells it for $110,000. At the same time, Karen sends Elbert a “Dear John” email. Calculate Karen’s realized and recognized gain or loss.

3. Mitch owns 1,000 shares of Oriole Corporation common stock (adjusted basis of $15,000). On April 27, 2014, he sells 400 shares for $5,200, while on May 5, 2014, he purchases 200 shares for $3,600.

a. What is Mitch’s recognized gain or loss resulting from these transactions?

b. What is Mitch’s basis for the stock acquired on May 5, 2014?

c. Could Mitch have obtained different tax consequences in a. and b. if he had sold the 400 shares on December 27, 2014, and purchased the 200 shares on January 5, 2015?

a. Mitch’s adjusted basis for the stock acquired on May 5, 2014, is $4,000 ($3,600 purchase price + $400 disallowed loss).

b. The tax consequences would have been the same. Mitch has a wash sale to the extent of the 200 shares purchased. To avoid the limitations of the wash sale, he should not purchase substantially identical stock within the 60-day window for a wash sale.

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