Hello,

Can someone help me understand this?

Becker MC CPA-01844

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   Year 1

Year of Sale          Year 8

Basis (cost)           $9,000

Sales price (FMV)  $4,000

The amount of long-term capital loss that Lydia realized in Year 8 on the sale of this stock was:

a. $5,000

b. $3,000

c. $2,500

d. $0

ans: a

Sales price (FMV) $4,000

Basis (cost)         (9,000)  

Loss realized        (5,000)

I got the calculation but my question is, wouldn't you divide the realized loss in half so that each partner incurs half of the loss?

There must be something I'm missing.

I can see where you're coming from, but the question is asking what would Lydia (personally realize) on the sale of stock to the partnership. The partnership didn't suffer the loss because it acquired the stock from Lydia, therefore nothing, by way of loss/gain, would be allocated based on their partnership interest.

Hope this makes sense.

-Jacob

Thanks Jacob :)

It makes sense. I didn't notice that the stock was sold by Lydia so I got confused.