A taxpayer receives a gift of stock. Donor's Basis: $10,000. FMV at Gift: $8,000. Taxpayer sells the stock for $9,000. What is the recognized gain or loss?

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

Using donor's basis for everything.

Answer options:

$1,000 gain

$1,000 loss

$2,000 gain

How to approach this question

Dual Basis Rule for Loss Property: <br/>1. Sell > Donor Basis ($10k) -> Use Donor Basis -> Gain. <br/>2. Sell < FMV ($8k) -> Use FMV -> Loss. <br/>3. Sell Between ($8k - $10k) -> No Gain/No Loss.

Full Answer

C.$0✓ Correct

IRC §1015(a). When FMV < Basis at time of gift, there is a dual basis. For gain, use donor's basis ($10,000). For loss, use FMV ($8,000). Since the sale price ($9,000) falls between the two, no gain or loss is recognized.

Common mistakes

Using donor's basis for everything.

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