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, 2016, 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 2007 at a cost of $10,000. What is Wallace's deductible loss for 2016 as a result of the sale of this stock?

Question

Quizplus · Accepted Answer

Since Wallace sold the stock for $7,000 and had originally bought it for $10,000, he incurred a long-term capital loss of $3,000 ($10,000 - $7,000). This loss can be used to offset any capital gains for the year, with up to $3,000 of the loss being deductible against ordinary income. However, since Wallace sold the stock to his partnership, which he has an equal interest in, the loss may be subject to special rules regarding related party transactions.

Wallace and Pedersen Have Equal Interests in the Capital and Profits