Wallace and Pedersen have equal interests in the capital and profits of the partnership of Wallace and Pedersen, but are otherwise unrelated. On August 1, 2015, Wallace sold 100 shares of Kalmia Mining Corporation to the partnership for its fair market value of $7,000. Wallace had bought the stock in 2000 at a cost of $10,000. What is Wallace's deductible loss for 2015 as a result of the sale of this stock?

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Wallace sold the shares for $7,000, which is less than what he paid for them ($10,000), resulting in a loss. This is a long-term capital loss since he held the shares for more than one year. However, because he sold the shares to a partnership in which he has an equal interest, this is considered a related-party transaction and the loss is disallowed for tax purposes. Therefore, Wallace's deductible loss for 2015 is $0.

Wallace and Pedersen Have Equal Interests in the Capital and Profits