ExpertHard1 markMultiple Choice
CPA · Question 16 · Area III: Property Transactions
In Year 1, J purchased stock for $10,000. In Year 3, J gave the stock to K when the fair market value (FMV) was $8,000. No gift tax was paid. K sold the stock in Year 4 for $7,000. What is the amount and character of K's loss?
In Year 1, J purchased stock for $10,000. In Year 3, J gave the stock to K when the fair market value (FMV) was $8,000. No gift tax was paid. K sold the stock in Year 4 for $7,000. What is the amount and character of K's loss?
Answer options:
A.
$1,000 long-term capital loss
B.
$3,000 long-term capital loss
C.
$1,000 short-term capital loss
D.
$3,000 short-term capital loss
How to approach this question
Apply IRC §1015 dual basis rules. 1) Determine if it's a 'loss gift' (FMV < Donor Basis). 2) Calculate loss using FMV basis. 3) Determine holding period (Does NOT tack if FMV basis is used).
Full Answer
C.$1,000 short-term capital loss✓ Correct
.
Common mistakes
Tacking the holding period when using the FMV basis (tacking only applies when using the donor's rollover basis).
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