Question 1

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?

Accepted Answer

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.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using the donor's basis for everything, or recognizing a loss when the sale price is actually higher than the FMV at gift date.

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?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA REG Practice Exam 3

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