[Anonymous]

Wiley online Testbank question PTAX-0027 says…

Doris and Lydia are equal partners in the capital and profits of Agee & Nolan, but are otherwise unrelated. The following information pertains to 300 shares of Mast Corp. stock sold by Lydia to Agee & Nolan:

Year of Purchase 2009

Year of Sale 2012

Basis (cost) $9,000

Sales price (equal to fair market value) $4,000

The amount of long-term capital loss that Lydia recognized in 2012 on the sale of the stock was…

a. $0

b. $5,000

c. $2,500

d. $3,000

I put $3,000 b/c I thought capital losses for individuals were limited to $3,000 per year. However, the correct answer is $5,000. Am I missing something here or do you think this could be a mistake in the test bank? Thanks!

[Rebecca_AZ]

The loss RECOGNIZED is $5,000. You are thinking too far ahead. If Lydia didn't have any capital gains to offset the capital loss, then she would only be able to deduct $3,000 but she RECOGNIZES $5,000. The remaining $2,000 carries over to the next year.

I passed in 2012!

BEC - PASSED - I'M DONE!!!
AUD - PASSED (finally!!)
REG - PASSED (Twice - lost credit first time)
FAR - PASSED!

[Rebecca_AZ]

The loss RECOGNIZED is $5,000. You are thinking too far ahead. If Lydia didn't have any capital gains to offset the capital loss, then she would only be able to deduct $3,000 but she RECOGNIZES $5,000. The remaining $2,000 carries over to the next year.

I passed in 2012!

BEC - PASSED - I'M DONE!!!
AUD - PASSED (finally!!)
REG - PASSED (Twice - lost credit first time)
FAR - PASSED!

[jokami]

It is the actual amount recognized, not the amount deducted in the Individual Tax return…

B - 62, 70, 72, 79!!!
A - 68, 81
R - 70, 82
F - 84

"The limit to your abilities is where you place them" - Fortune Cookies

[jokami]

It is the actual amount recognized, not the amount deducted in the Individual Tax return…

B - 62, 70, 72, 79!!!
A - 68, 81
R - 70, 82
F - 84

"The limit to your abilities is where you place them" - Fortune Cookies

[Anonymous]

Ahhh… that makes sense now. I do recall reading something about recognized vs. realized gains, so I better look over that again. Thanks a bunch for your help, Rebecca!!

ETA: Thanks for your help, too Jokami! We must have been typing at the same time 🙂

[Anonymous]

Ahhh… that makes sense now. I do recall reading something about recognized vs. realized gains, so I better look over that again. Thanks a bunch for your help, Rebecca!!

ETA: Thanks for your help, too Jokami! We must have been typing at the same time 🙂

[calicpa]

A loss is realized immediately after you sell an asset for a loss. A loss is recognized when the loss may be applied against your taxes. Most sales create a realized and recognized loss at the same time, immediately after the sale. The IRS delays the tax impact of certain transactions. These transactions are specifically listed in the tax code. If a sale has a delayed tax impact, it will create a realized loss but not a recognized loss. The loss will only be recognized when the tax impact is recognized by the IRS.

Isn't the realized loss 5,000 and recognized loss 3,000 since that is what they are recognizing on their tax return?

BEC - 84, 4/6/13
AUD - 77, 5/28/13
REG - 83, 4/12/14
FAR - 83, 10/3/13

Ethics - 90% 4/24/13

150 unit education requirement met!
Work experience met!

[calicpa]

A loss is realized immediately after you sell an asset for a loss. A loss is recognized when the loss may be applied against your taxes. Most sales create a realized and recognized loss at the same time, immediately after the sale. The IRS delays the tax impact of certain transactions. These transactions are specifically listed in the tax code. If a sale has a delayed tax impact, it will create a realized loss but not a recognized loss. The loss will only be recognized when the tax impact is recognized by the IRS.

Isn't the realized loss 5,000 and recognized loss 3,000 since that is what they are recognizing on their tax return?

BEC - 84, 4/6/13
AUD - 77, 5/28/13
REG - 83, 4/12/14
FAR - 83, 10/3/13

Ethics - 90% 4/24/13

150 unit education requirement met!
Work experience met!

[Only Reg Left]

The $5,000 loss is both realized and recognized. While the loss is limited to $3,000, at this point you don't know if she has additional capital gains to report on her return.

GR: If it's not specifically excluded from recognition (HIDEIT or WRaP), it's recognized on the return!

AUD - 68, 77
REG - 84* (Expired)
FAR - 83
BEC - 74, 74, 72, 72, 84

[Only Reg Left]

The $5,000 loss is both realized and recognized. While the loss is limited to $3,000, at this point you don't know if she has additional capital gains to report on her return.

GR: If it's not specifically excluded from recognition (HIDEIT or WRaP), it's recognized on the return!

AUD - 68, 77
REG - 84* (Expired)
FAR - 83
BEC - 74, 74, 72, 72, 84

[Author]

Replies