Private Wealth - Exam Question
Wald has a realized capital gain of CLC 50,000 in another taxable account. Her advisor reviews that account and notices that Stock Y has an unrealized loss of CLC 45,000 and a cost basis of CLC 220,000. The advisor explains two alternate plans to Wald:
Plan A: Sell Stock Y in Year 1 to realize the loss and replace it with Stock Z, which the advisor believes will have the same expected return as Stock Y. In Year 2, sell Stock Z at an expected market value of CLC 250,000.
Plan B: Hold Stock Y until Year 2 and then sell it at an expected market value of CLC 250,000. B.
Demonstrate that the amount of Wald’s total two-year tax liability is the same for both plans. Show your calculations.
Could someone please explain the rationing that should be applied in such a case, with the replacement of stocks with same returns? I have seen the solution, but do not really get it…
Thank you, I would appreciate it very much, I got very frustrated because of this :(
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