In January, Lance Sold Stock with a Cost Basis of $26,000

question 23

Multiple Choice

In January, Lance sold stock with a cost basis of $26,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale.Five months later, James sold the same stock through his broker for $27,000.What is the tax effect of these transactions?

• A)Disallowed loss to James of $2,000; gain to Lance of $1,000.
• B)Disallowed loss to Lance of $2,000; gain to James of $3,000.
• C)Deductible loss to Lance of $2,000; gain to James of $3,000.
• D)Disallowed loss to Lance of $2,000; gain to James of $1,000.
• E)None of these.