AICPA CPA-Regulation Exam - Topic 3 Question 22 Discussion

Actual exam question for AICPA's CPA-Regulation exam

Question #: 22
Topic #: 3

Conner purchased 300 shares of Zinco stock for $30,000 in 1980. On May 23, 1994, Conner sold all the stock to his daughter Alice for $20,000, its then fair market value. Conner realized no other gain or loss during 1994. On July 26, 1994, Alice sold the 300 shares of Zinco for $25,000.

What amount of the loss from the sale of Zinco stock can Conner deduct in 1994?

A$0

B$3,000

C$5,000

D$10,000

Show Suggested Answer

Suggested Answer: A

Choice 'a' is correct. Even though Conner has a realized loss of $10,000 on this transaction he cannot deduct the loss since it was incurred in a transaction with his daughter, a related party.

Choice 'b' is incorrect. $3,000 is the limit on deductible net capital losses. However, Conner cannot deduct this loss, since it was incurred in a transaction with his daughter, a related party.

Choice 'c' is incorrect. Conner's realized loss on the sale is $10,000 ($20,000 proceeds less $30,000 basis). However, Conner cannot deduct this loss, since it was incurred in a transaction with his daughter, a related party.

Choice 'd' is incorrect. $10,000 is Conner's realized loss on the sale. However, Conner cannot deduct this loss, since it was incurred in a transaction with his daughter, a related party.

by Rolland at May 05, 2022, 05:18 AM

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5 months ago

Okay, I've got a strategy for this. I'll start by considering each option and how it relates to the idea of "normalized services." That should help me identify the right answer.

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