Samuel sold ABC stock valued at $22,650 to his son Jim for $12,650. Samuel\'s ba

Question

Samuel sold ABC stock valued at $22,650 to his son Jim for $12,650. Samuel's basis in the stock is $17,650. Which of the following is correct? A) Samuel reports a gift of $22,650 on form 709 and a capital loss of $10,000 on form 1040. Jim's basis in the stock is $12,650. B) No reporting is required because the transfer was between immediate family members. C) Samuel is not required to report the $10,000 gift and is not allowed to deduct the $5,000 loss. If Jim sells the stock, his basis for gain is $17,650, and his basis for loss is $12,650. D) Samuel reports a gift of $22,650. Jim's basis in the stock is $12,650.

Explanation / Answer

Ans is C) Samuel is not required to report the $10,000 gift and is not allowed to deduct the $5,000 loss. If Jim sells the stock, his basis for gain is $17,650, and his basis for loss is $12,650.

Explanation: Under IRS code sec 267 losses on sales to related parties is disallowed, and the stock carries two basis for gains and losses, $17650 for gain and $12650 for loss, so loss of $5000 is never allowed to be deducted.

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