Question 1 - Sarah owns 100 shares of Drake, Inc. (adjusted basis of$50,000). On October 11, 2010, she sells the 100 shares for their fair market value of $45,000. On November 5, 2010, she purchases 125 shares of Drake stock for $57,500.
a. What is Sarah's realized and recognized gain or loss on the 100 shares sold on October 11, 2010?
b. What is Sarah's adjusted basis for the 125 shares purchased on November 5, 2010?
c. How would your answer in (a) and (b) change if Sarah purchased only 75 shares for $34,500 on November 5, 2010?
d. How would your answers (a) and (b) change if Sarah purchased 125 shares on November 15, 2010, instead of November 5, 2010? Which purchase date would you recommend.
Question 2 - On January 15, 2010, Kelly, a 48 year old widow, buys a new residence for $280,000. On the same day, she sells her old residence (adjusted basis of $110,000) for $297,000.Real estate commissions and legal fees total $20,000. She purchased the old residence on February 15, 2008, and occupied it as her principal residence from that date until January 15. 2010. Between April 1 and June 30, 2010, she constructs an addition to her new house T cost of $20,000.
a. What is Kelly's realized gain or loss?
b. Kelly's recognized gain or loss?
c. Kelly's basis for the new residence?
d. Under part (b), what could Kelly have done to produce a better tax result?