In September of 2015,Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000.She had held the stock for 7 months.Forty-five days after the sale she purchased other qualified small business stock for $1,100,000.How much of the gain will she recognize?

Question

Quizplus · Accepted Answer

Michelle sold the qualified small business stock for a gain of $800,000 ($1,000,000 - $200,000). However, since she purchased other qualified small business stock within 45 days after the sale, she has triggered the wash sale rule. This means she cannot recognize the gain on the sale of the original stock. Instead, the basis of the new stock will be adjusted to $1,000,000 (the sale price of the original stock). Therefore, she will recognize $0 gain on the sale.

In September of 2015,Michelle Sold Shares of Qualified Small Business