Tax & EvaluationQuestion 97 of 110
An investor sells fund shares at a $4,000 loss on March 10 and buys shares of the same fund on March 25. The result is:
a.The full $4,000 loss is deductible in the current year
b.The loss is disallowed under the wash sale rule and is added to the basis of the newly purchased shares
c.The loss is permanently forfeited
d.Only half the loss is deductible
Explanation
Repurchasing a substantially identical security within 30 days before or after the sale triggers the wash sale rule, deferring the loss rather than eliminating it. The disallowed amount is added to the basis of the replacement shares, so the benefit is recovered on a later sale. Waiting 31 days would have preserved the current deduction.
Law Reference: Internal Revenue CodePractice all 110 questions free — no signup required.
Related questions on this topic
- Qualified dividends distributed by an equity mutual fund to a taxable account are generally taxed:
- A fund makes a distribution characterized as a return of capital. The immediate effect on the shareholder is:
- An investor automatically reinvests $3,000 of taxable fund distributions over several years. The effect on cost basis is that basis:
- Which cost basis method applies to mutual fund shares if the shareholder makes no election?
- An investor exchanges shares of a growth fund for shares of a bond fund within the same fund family at net asset value. For tax purposes, this exchange is:
- A shareholder of a municipal bond fund receives $900 of income distributions and a $500 capital gains distribution. The federal tax treatment is:
Last reviewed: · editorial process
PrepPass Editorial Team · Verified against FINRA Series 6 — Investment Company & Variable Contracts Rep · How we review