Brittany Callihan sold stock (basis of $184,000) to her son, Ridge, for $160,000

Question

Brittany Callihan sold stock (basis of $184,000) to her son, Ridge, for $160,000, the fair market value. a. What are the tax consequences to Brittany? b. What are the tax consequences to Ridge if he later sells the stock for $190,000? For $152,000? For $174,000? c. Write a letter to Brittany in which you inform her of the tax consequences if she sells the stock to Ridge for $160,000. Explain how a sales transaction could be structured that would produce better tax consequences for her. Brittany’s address is 32 Country Lane, Lawrence, KS 66045.

Explanation / Answer

a.What are the tax consequences to Brittany?

-->> There are no tax consequences because it is a transaction between two related parties; therefore the loss is not realized. But there is a right of offset amount of $24,000.

b.What are the tax consequences to Ridge if he later sells the stock for $190,000? For $152,000? For $174,000?

190000: 190000-184000-24000= -18000

152000: 152000-184000-24000= -56000

174000: 174000-184000-24000= -34000

c.Write a letter to Brittany in which you inform her of the tax consequences if she sells the stock to Ridge for $160,000. Explain how a sales transaction could be structured that would produce better tax consequences for her. Brittany’s address is 32 Country Lane, Lawrence, KS 66045.

-->> She can have a non- related transaction so therefore she can realize a lost of 24,000 and have that 24,000 deducted from gross income as a capital loss.

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