¶10,201 Stock Transactions
When a seller can identify the shares of stock sold or transferred, the basis is the basis of the stock
so identified. If the shares of stock were purchased at different dates or at different prices and the lot
from which the stock was sold or transferred cannot be adequately identified, the stock sold is charged
against the earliest of the stock purchases (i.e., the FIFO rule). No deduction for losses is allowed on the
sale of stock or securities if, within a period beginning 30 days before the date of the sale and ending 30
days after the date of sale, substantially identical stock or securities are acquired. The disallowed loss,
however, is not ‘‘lost'' but is added to the basis of the newly acquired stock.
¶10,215 Personal-Use Property Conversion
When property purchased for personal use is converted to business or income-producing use, the
basis for determining loss is the lesser of (1) the fair market value of the property at the time of the
conversion or (2) the adjusted basis for loss at the time of the conversion.
¶10,225 Related Parties
No loss deduction is allowed on sales or exchanges of property, directly or indirectly, between
certain related parties. Any losses disallowed, however, may be used to offset the gain realized by the
related purchaser on a later sale of the property. This offset possibility is available only to the original
¶10,245 Installment Reporting
An installment sale is a disposition of property where at least one payment is to be received after
the close of the taxable year in which the disposition occurs. The installment method allows gain to be
spread over more than one year. The amount of income recognized is the proportion of the payments
received in the year which the gross profit bears to the total contract price.
ANSWER TO KEYSTONE PROBLEM—CHAPTER 10
For a purchase of an asset, the initial basis is its cost.
For a bargain purchase, the initial basis is its fair market value.
For assets included in a lump-sum purchase, the total cost must be allocated among the separate
properties according to their relative fair market value.
A taxpayer's original basis for property acquired by gift is the same as the property's adjusted basis
in the hands of the donor or the last preceding owner by whom it was not acquired by gift. If,
however, the property's fair market value at the time of the gift is less than the adjusted basis to
the donor, then the basis for determining
is the fair market value at the time of the gift. A
selling price of gift property between the basis for determining gain and a lesser fair market value
will result in neither gain nor loss. For gifts made after December 31, 1976, the basis is increased
by the portion of gift tax that is attributable to the net appreciation in value of the gift. For gifts
made prior to 1977, the full amount of the gift tax is added to the donor's adjusted basis, but the