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, 2014, 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 2014 as a result of the sale of this stock?

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Wallace sold the stock for $7,000, which is less than his cost basis of $10,000, resulting in a loss. Since the stock was held for more than one year, this is a long-term capital loss. However, since the sale was to a partnership where Wallace has an equal interest, this is considered a related party transaction and the loss is disallowed as a deduction. Therefore, Wallace's deductible loss for 2014 is $0.

Wallace and Pedersen Have Equal Interests in the Capital and Profits