Taxation

Jonas is holding an option on vacant land. He paid $40,000 for the option on November 3, 2009, and the option expires on December 31, 2010. If Jonas exercised the option, he would hold the vacant land for investment. Jonas does not intend to exercise the option, but could sell it for $2,000 on October 20, 2010.

What are Jonas’s tax consequences from either (a) selling the option or (b) letting the option expire?

Ali owns 100 shares of Brown Corporation stock. He purchased the stock at five different times and at five different prices per share as indicated. On April 28, 2010, Ali will sell 40 shares of Brown stock for $40 per share. All of Ali’s shares are held by his stockbroker. The broker’s records track when the shares were purchased.

May Ali designate the shares he sells, and, if so, which shares should he sell? Assume Ali wants to maximize his gain because he has a capital loss carry forward.

Solution:

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