Answer: a)$59,125 (loss)
b) $5,913 (loss)
c) $0
Explanation:
a. In calculating Sharrod's deductible loss, we can use the following formula,
= Beginning Stock + Long Term Capital Gain - Cash distribution
Calculated that would be,
= 107,500 + 16,125 - 64,500
= $59,125
Sharrod's deductible loss is $59,125
b. For Sharrod's suspended loss, the formula we will use is like in a but with an added subtraction.
= Beginning Stock + Long Term Capital Gain - Cash distribution - ordinary loss
= 107,500 + 16,125 - 64,500 - 65,038
= -$5,913
Sharrod's suspended loss is therefore $5,913
c) Sharrod's new basis is now therefore 0.
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