Exciting Capital Gains and Losses Scenario in the Stock Market!

Are you ready for an exciting journey into the world of capital gains and losses in the stock market? Let's dive into a fascinating scenario involving Norma, Shannon, and Henry!

Norma's Recognized Loss:

In this scenario, Norma sells her Canyon, Inc. stock to Shannon for $16,000, which is lower than her adjusted basis of $20,000. However, due to the sale being between related parties, Norma cannot recognize a loss for tax purposes.

Shannon's Recognized Gain or Loss:

Since Shannon later sells the stock to Henry for $19,000, which is more than what she paid but less than Norma's adjusted basis, Shannon cannot recognize a gain. Therefore, Shannon recognizes no gain in this transaction.

Henry's Adjusted Basis:

Henry's adjusted basis for the stock would be Shannon's purchase price ($16,000) plus any disallowed loss of Norma's that Shannon can recognize ($4,000), totaling to $20,000. This means that Henry's adjusted basis for the stock is $20,000.

Now you are familiar with the details of the scenario involving Norma, Shannon, and Henry. Capital gains and losses can be complex, especially when related parties are involved. Understanding the tax implications of such transactions is crucial for making informed decisions in the stock market.