Wallace and Pedersen have equal interests in the capital and profits of the partnership of Wallace and Pedersen.They are otherwise unrelated to each other.On August 1, 2018, 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 2009 at a cost of $10,000.What is Wallace's deductible loss for 2018 as a result of the sale of this stock?

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Quizplus · Accepted Answer

Since this is a sale of stock, we need to use the tax rules for capital gains and losses. The sale resulted in a loss of $3,000 ($7,000 sale price - $10,000 cost basis). Since the stock was held for more than one year, this is a long-term capital loss. Wallace is allowed to deduct up to $3,000 of capital losses against ordinary income in the current tax year. Therefore, Wallace's deductible loss for 2018 is $3,000 as a result of the sale of this stock.

Wallace and Pedersen Have Equal Interests in the Capital and Profits