Question 1

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?

Accepted Answer

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.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using the donor's basis for all calculations regardless of FMV.

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?

How to approach this question

Full Answer

Common mistakes

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