35. Harry and Ruth are married but file separate returns. Each of them holds stocks in their own individual account. Near the end of the year, Harry decided to sell shares of one company he owned at a loss in order to lower his income tax. His loss on the sale was $7,000. Ruth sold shares of two companies; one resulted in a $2,000 loss and the other in a $1,500 gain. When Harry and Ruth file their income taxes for the current year, the proper treatment of these transactions will be which of the following?

a) Since net capital losses total $7,500, each of them will offset a $1,500 capital loss against ordinary income and carry over $4,500 to future years.

b) Harry will offset the maximum $3,000 capital loss against ordinary income and carry over $4,000 to future years.

c) Harry will offset a $1,500 capital loss against ordinary income and carry over $5,500 to future years while Ruth will recognize a $500 capital loss with no carryover.

d) Ruth and Harry will each offset a $3,000 capital loss against ordinary income and carry over $1,500 to future years.

36. A Married Filing Jointly taxpayer sells his personal residence. The taxpayer and his wife must report a gain from the sale of the personal residence on their tax return under which of the following circumstances?

a) They owned the home for 7 years, lived there as their main home for 2 years, and the gain did not exceed $500,000.

b) He or his wife had a loss on the sale of a previous personal residence.

c) They had a gain after qualifying for and claiming the $500,000 exclusion.

d) They have lived on a houseboat for two years as their main residence, owned it for 10 years, and sold it for a profit of $100,000.

37. The taxpayer, Michael, owns 500 common shares of X Company. The shares were purchased for $25,000. He sells all the shares for $12,000. He purchases 500 shares of the same stock 30 days later for $13,000. His wife had not mentioned that 31 days prior to his sale, she had purchased 500 shares of the same stock for $16,000. Which of the following incorrectly defines a wash sale?

a) After selling or trading a stock or securities at a loss, the taxpayer buys substantially identical stock or securities within 30 days.

b) Within 31 days of selling a stock or securities at a loss, the taxpayer or spouse acquires substantially identical stock or securities in a fully taxable trade.

c) If the taxpayer sells the stock or securities at a loss and within 30 days, his spouse buys identical stock or securities.

d) After selling a stock or securities at a loss, the taxpayer acquires a contract or option to buy substantially identical stock or securities 29 days later.