Series 7 practice questionhardTax Implications — Wash Sale Rule
An investor buys 100 shares of JKL stock at $50 on January 10, sells them at $40 on February 15 (a $1,000 loss), and buys 100 new shares at $42 on March 5. What is the adjusted cost basis of the new shares?
- A$42 per share
- B$50 per share
- C$52 per share✓ Correct answer
- D$40 per share
Explanation
Why C — $52 per share
The wash sale rule applies because the new shares were bought within 30 days of the sale. The $1,000 loss ($10/share x 100) is disallowed and added to the cost basis of the new shares. New adjusted basis = $42 purchase price + $10 disallowed loss per share = $52 per share. The holding period of the original shares also tacks onto the new shares. When eventually sold, the higher basis will reduce the future taxable gain.
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