Ann Hamilton owns 500 shares in the XYZ S P 500 Index Fund. The basis of her investment in this fund is 4,500, while the fair market value is only2,000. She wants to sell her shares to "lock in" the 2,500 loss, but she is considering buying 500 shares of the GRC Small-Cap Index ETF the following week because she believes that the value is going to increase significantly over a longer period.
As her planner, What can you accurately tell Ann about this scenario?
1) The loss would be a fully deductible capital loss.
2) The basis in the newly acquired shares would be the amount paid for those shares, increased by the2,500 disallowed loss.
3) She should wait a minimum of 61 days after the sale to repurchase the shares so that the loss may be recognized.
4) If the loss were disallowed, the basis in the newly acquired shares would be decreased by the disallowed loss.