ExpertMedium1 markMultiple Choice
CPA · Question 62 · Area I: Individual Compliance and Planning
A taxpayer receives a gift of stock. Donor's Basis: $10,000. FMV at Gift: $8,000. Taxpayer sells the stock for $9,000. What is the recognized gain or loss?
A taxpayer receives a gift of stock. Donor's Basis: $10,000. FMV at Gift: $8,000. Taxpayer sells the stock for $9,000. What is the recognized gain or loss?
Answer options:
A.
$1,000 gain
B.
$1,000 loss
C.
$0
D.
$2,000 gain
How to approach this question
Dual Basis Rule for Loss Property: <br/>1. Sell > Donor Basis ($10k) -> Use Donor Basis -> Gain. <br/>2. Sell < FMV ($8k) -> Use FMV -> Loss. <br/>3. Sell Between ($8k - $10k) -> No Gain/No Loss.
Full Answer
C.$0✓ Correct
IRC §1015(a). When FMV < Basis at time of gift, there is a dual basis. For gain, use donor's basis ($10,000). For loss, use FMV ($8,000). Since the sale price ($9,000) falls between the two, no gain or loss is recognized.
Common mistakes
Using donor's basis for everything.
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