ExpertMedium1 markMultiple Choice
CPA · Question 12 · Area I: Individual Compliance and Planning
A father gifts stock to his daughter. At the time of the gift, the father's adjusted basis is $20,000 and the FMV is $15,000. No gift tax is paid. The daughter sells the stock two years later for $18,000. What is the daughter's recognized gain or loss?
A father gifts stock to his daughter. At the time of the gift, the father's adjusted basis is $20,000 and the FMV is $15,000. No gift tax is paid. The daughter sells the stock two years later for $18,000. What is the daughter's recognized gain or loss?
Answer options:
A.
$2,000 loss
B.
$3,000 gain
C.
$2,000 gain
D.
No gain or loss
How to approach this question
Dual Basis Rule (IRC §1015). Gain Basis = Donor's Basis ($20k). Loss Basis = FMV at gift ($15k). If sold between these two amounts ($18k), no gain or loss is recognized.
Full Answer
D.No gain or loss✓ Correct
D
IRC §1015(a). Because FMV < Basis at date of gift, the donee has a dual basis. For gain, basis is $20,000. For loss, basis is $15,000. Since the sale price ($18,000) is between the gain basis and the loss basis, no gain or loss is recognized.
Common mistakes
Using the donor's basis for all calculations regardless of FMV.
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