4. John buys shares of stock in Acme Corp. on January 1, 2018 for $50. John dies
ID: 2332675 • Letter: 4
Question
4. John buys shares of stock in Acme Corp. on January 1, 2018 for $50. John dies July 1, 2018 when the stock has a fmv of $60. Mary inherits the stock from John’s estate. Mary sells the stock on September 1, 2018 for $80.
a. What is the gain /loss recognized by John’s estate? ______________
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? _____________
5. Same facts as in Question 4 except the value of the shares is $40 on John’s date of death.
a. What is the gain /loss recognized by John’s estate? ______________
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? _____________
6. Same facts as in Question 4 except Mary sells the stock for $30.
a. What is the gain /loss recognized by John’s estate? ______________
What is the character of the gain/loss? _____________
b. What is gain /loss recognized by Mary? ______________
What is the character of the gain/loss? _____________
7. Same facts as in Question 4 except Mary Sells the stock on May 1, 2019.
a. What is the gain /loss recognized by John’s estate? ______________
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
4 (A) What is the gain /loss recognized by John’s estate? Loss for $60 What is the character of the gain/loss? Short Term capital loss (B) What is the gain /loss recognized by Mary? Profit of $20 ($80-$60) What is the character of the gain/loss? Short Term Capital gain 5 (A) What is the gain /loss recognized by John’s estate? Capital Loss of $40 What is the character of the gain/loss? Short term capital loss (B) What is the gain /loss recognized by Mary? Capital Gain of $40 ($80-$40) What is the character of the gain/loss? Short Term Capital gain 6 (A) What is the gain /loss recognized by John’s estate? Capital Loss for $60 What is the character of the gain/loss? Short Term capital loss (B) What is the gain /loss recognized by Mary? Capital Loss of $30 ($30-$60) What is the character of the gain/loss? Short term Capital Loss 7 (A) What is the gain /loss recognized by John’s estate? Capital Loss for $60 What is the character of the gain/loss? Short Term capital loss (B) What is the gain /loss recognized by Mary? Capital Gain of $20 ($80-$60) What is the character of the gain/loss? Long Term Capital gain Note: (A) When you inherit stock from someone then the value of that stock on the date that person died shall be considered : FMV SHALL BE TAKEN (B) In case of shares gain/losses are recognised as capital gains/losses because these are capital asset . In 7th Point Gain is considered as Long Term Capital Gain because shares are sold after 1year and for shares more than 1 year is taken as long term.
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