Doris and Lydia are sisters and also are equal partners in the
capital and profits of Agee & Nolan. The following information
pertains to 300 shares of Mast Corp. stock sold by Lydia to Agee
& Nolan.

Year of purchase 2006

Year of sale 2013

Basis (cost) $9,000

Sales price (equal to fair market value) $4,000

The amount of long-term capital loss that Lydia recognized in
2013 on the sale of this stock was

(d) The requirement is to determine the amount of
long-term capital loss recognized by Lydia from the sale of stock
to Agee & Nolan. A loss is disallowed if incurred in a transaction
between a partnership and a person owning (directly or constructively)
more than a 50% capital or profits interest. Although
Lydia directly owns only a 50% partnership interest, she constructively
owns her sister’s 50% partnership interest. Since
Lydia directly and constructively has a 100% partnership interest,
her $5,000 loss is disallowed.