1. John buys shares of stock in Acme Corp. on January 1, 2018 for $50. He gifts
ID: 2332673 • Letter: 1
Question
1. John buys shares of stock in Acme Corp. on January 1, 2018 for $50. He gifts the stock to Mary on July 1, 2018 when the stock has a fair market value (fmv) of $60. Mary sells the stock on September 1 , 2018 for $80.
a. What is the gain /loss recognized by John? ______________
What is the character of the gain/loss? _____________
b. What is the gain /loss recognized by Mary? ______________
What is the character of the gain/loss? _____________
2. Same facts as in Question 1 except the value of the shares when the gift is made is $40.
a. What is the gain /loss recognized by John? ______________
What is the character of the gain/loss? _____________
b. What is the gain /loss recognized by Mary? ______________
What is the character of the gain/loss? _____________
3. Same facts as in Question 1 except Mary Sells the stock on May 1, 2019.
a. What is the gain /loss recognized by John? ______________
What is the character of the gain/loss? _____________
b. What is the gain /loss recognized by Mary? ______________
What is the character of the gain/loss? _____________
Explanation / Answer
1 (a) Gain/loss recognized by John No gain/loss will be recognized by John as he gifted the stock and has not sold them. He does not received any selling price. (B) Gain/loss recognized by Mary Selling Price of Stock $80 Cost basis of Stock (cost basis of John) $50 Gain $30 The Character of gain is short-term as the stock is sold before one year from the date of purchase 2 (a) Gain/loss recognized by John No gain/loss will be recognized by John as he gifted the stock and has not sold them. He does not received any selling price. Gain/loss recognized by Mary Selling Price of Stock $80 Cost basis of Stock $40 Gain $40 The Character of gain is short-term as the stock is sold before one year from the date of purchase 3 (a) Gain/loss recognized by John No gain/loss will be recognized by John as he gifted the stock and has not sold them. He does not received any selling price. (B) Gain/loss recognized by Mary Selling Price of Stock $80 Cost basis of Stock (cost basis of John) $50 Gain $30 The Character of gain is long term capital gain as the stock is sold after one year from the date of purchase When someone receives a gift, the holding period includes the holding period of the original owner (donor), the cost basis of the property sold is the cost basis of the original owner. But if the fair market value of the property is lesser than the cost basis on the date of gift, the cost basis of the gifted property will be the fair market value on the date of gift.
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