[Anonymous]

Dunn received 100 shares of stock as a gift from Dunn’s grandparent. The stock cost Dunn’s grandparent $32,000 and it was worth $27,000 at the time of the transfer to Dunn. Dunn sold the stock for $29,000. What amount of gain or loss should Dunn report from the sale of the stock?

a.

$0

b.

$2,000 gain.

c.

$3,000 gain.

d.

$3,000 loss.

Explanation

Choice “a” is correct. To determine the amount of gain or loss that should be reported on the sale of gifted property, a determination must be made as to whether the property is sold at a gain or a loss. The stock in this question has a $27,000 value which is less than its $32,000 cost. The basis for gain is the adjusted basis of the donor on the date of gift, or $32,000. However, the stock is sold for $29,000, which is not at a gain. The basis for loss is the lower of the adjusted basis or the fair market value on the date of gift, or $27,000. However, the stock is not sold at a loss. In this situation, neither gain nor loss is recognized, and the “middle” basis of the subsequent sales price is used.

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Farr made a gift of stock to her child, Pat. At the date of gift, Farr’s stock basis was $10,000 and the stock’s fair market value was $15,000. No gift taxes were paid. What is Pat’s basis in the stock for computing gain?

a.

$5,000

b.

$15,000

c.

$0

d.

$10,000

Explanation

Choice “d” is correct. Property acquired as a gift generally retains the rollover cost basis that it had in the hands of the donor at the time of the gift. Basis is increased by any gift tax paid that is attributable to the net appreciation in the value of the gift. Since there were no gift taxes paid, Pat’s basis for computing a gain is the rollover cost (basis), $10,000.

[Anonymous]

For the second question, it's assuming that if you sell it immediately, the price of the gifted asset probably won't be below $10,000.

Bottom line is that if you were gifted the asset and it doesn't look like you're trying to sneak across a built in loss, you just use carryover basis to calculate gain or loss.

If you're trying to sneak across a built in loss, then the government's going to make you go through some weird stuff to eliminate or reduce any loss you realize. That's it.

[leglock]

@cpasoon

If i understand ur last question, what they r sAying is that when pat ultimately sells the stock, his basis will be 10000 when calculating pats gain or loss on sale not 15000

[CPA soon]

@leglock, that's what I was getting at, Gain or Loss was meant when they said Gain. This is what caused this whole confusion.

FAR - 71, 68, 74, (8/31/14) 78 ✔
REG - 67, 71, 71, (10/18/14) 78 ✔
BEC - (11/29/14) 86 ✔
AUD - 73, (4/4/15) 86 ✔

I can't believe this is over! 2 years and 3 months..

[Author]

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