ExpertHard1 markMultiple Choice
CPA · Question 18 · Area III: Property Transactions
In Year 1, Jordan received a gift of stock from a parent. The parent's adjusted basis was $10,000, and the fair market value (FMV) at the date of the gift was $8,000. No gift tax was paid. In Year 2, Jordan sold the stock for $9,000. What is the amount of gain or loss Jordan must report?
In Year 1, Jordan received a gift of stock from a parent. The parent's adjusted basis was $10,000, and the fair market value (FMV) at the date of the gift was $8,000. No gift tax was paid. In Year 2, Jordan sold the stock for $9,000. What is the amount of gain or loss Jordan must report?
Answer options:
A.
$1,000 gain
B.
$1,000 loss
C.
No gain or loss
D.
$500 loss
How to approach this question
Dual Basis Rule: If FMV < Donor Basis at gift date, use Donor Basis for Gain, FMV for Loss. If sold in between, no G/L.
Full Answer
C.No gain or loss✓ Correct
Under IRC §1015, when the FMV at the date of gift is less than the donor's basis, a dual basis exists. Basis for gain is the donor's basis ($10,000). Basis for loss is the FMV ($8,000). Since the sale price ($9,000) falls between these two amounts, no gain or loss is recognized.
Common mistakes
Always using the donor's carryover basis.
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