ExpertHard1 markMultiple Choice
CPA · Question 18 · Area III: Property Transactions
In Year 1, Alex received a gift of stock from a parent. The parent's adjusted basis was $10,000, and the fair market value (FMV) at the date of the gift was $8,000. No gift tax was paid. In Year 2, Alex sold the stock for $9,000. What is the amount of gain or loss Alex must recognize?
In Year 1, Alex received a gift of stock from a parent. The parent's adjusted basis was $10,000, and the fair market value (FMV) at the date of the gift was $8,000. No gift tax was paid. In Year 2, Alex sold the stock for $9,000. What is the amount of gain or loss Alex must recognize?
Answer options:
A.
$1,000 gain
B.
$1,000 loss
C.
No gain or loss
D.
$500 loss
How to approach this question
Dual Basis Rule: 1. Gain Basis = Donor's Basis ($10k). 2. Loss Basis = Lower FMV ($8k). 3. If Sale Price is between them ($9k), no gain or loss.
Full Answer
C.No gain or loss✓ Correct
C
Under IRC §1015, when FMV < Donor's Basis at the time of the gift, the basis for gain is the Donor's Basis ($10,000) and the basis for loss is the FMV ($8,000). Since the sale price ($9,000) is less than the gain basis (no gain) and greater than the loss basis (no loss), no gain or loss is recognized.
Common mistakes
Using the donor's basis for everything, or recognizing a loss when the sale price is actually higher than the FMV at gift date.
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