Sorry for asking a million questions, but can anyone explain the answer to this? Why couldn't the original loss offset the new gain? Is it because it was essentially a “gift”?
Gibson purchased stock with a fair market value of $14,000 from Gibson's adult child for $12,000. The child's cost basis in the stock at the date of sale was $16,000. Gibson sold the same stock to an unrelated party for $18,000. What is Gibson's recognized gain from the sale?
A.
$0
Correct:
B.
$2,000
C.
$4,000
D.
$6,000
When Gibson's adult child sold stock valued at $14,000 to a parent for $12,000, the child made a $2,000 gift to the parent as well. Where a transfer of property is in part a sale and in part a gift, the basis to the purchaser is the sum of:
the greater of:
the amount paid for the property or
the seller's adjusted basis for the property at the time of the transfer, and
the amount of basis increase allowed for gift tax paid.
In this case, the seller's $16,000 adjusted basis in the property at the time of the transfer was greater than the $12,000 paid for the property, so this is Gibson's basis in the stock. His gain is recognized as follows:
Sale price $18,000
Basis (16,000)
——–
Recognized gain $ 2,000
Note
For determining loss, the basis of the property to the purchaser cannot be greater than the fair market value of the property at the time of the transfer.
FAR (66,68) Aug 26
REG (66) July 25
AUD (66) December 1st
BEC - October 3rd
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