Q: What mistakes do candidates make on this CPA question?

Tacking the holding period when using the FMV basis (tacking only applies when using the donor's rollover basis).

Question 1

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?

Accepted Answer

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).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Tacking the holding period when using the FMV basis (tacking only applies when using the donor's rollover basis).

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?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA REG Practice Exam 2

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