In January, Lance Sold Stock with a Cost Basis of $26,000

Multiple Choice

In January, Lance sold stock with a cost basis of $26,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale. Five months later, James sold the same stock through his broker for $27,000. What is the tax effect of these transactions?

A) Disallowed loss to James of $2,000? gain to Lance of $1,000.
B) Disallowed loss to Lance of $2,000? gain to James of $3,000.
C) Deductible loss to Lance of $2,000? gain to James of $3,000.
D) Disallowed loss to Lance of $2,000? gain to James of $1,000.
E) None of the above.