On July 25,2014,Karen gives stock with a FMV of $7,500 and a basis of $8,000 to her nephew Bill.Karen had purchased the stock on March 18,2014.Bill sold the stock on April 18,2015 for $6,000.As a result of the sale,what must Bill report on his 2014 tax return?

Question

Quizplus · Accepted Answer

Since Bill sold the stock on April 18, 2015, the loss is considered a short-term capital loss (STCL) and must be reported on his 2015 tax return. However, he received the stock as a gift in 2014, so the loss can be reported as a STCL on his 2014 tax return, up to a limit of $3,000. The FMV of the stock on the date of gift is not relevant for determining the loss, only the basis of the stock to the donor. Since Karen's basis was $8,000 and Bill sold for $6,000, he has a $2,000 loss. However, the maximum amount of loss that can be used to offset other income on his 2014 tax return is $1,500 ($3,000 limit for STCLs minus the $1,500 gain he included in income from another transaction). Therefore, he must report a STCL of ($1,500) on his 2014 tax return.

On July 25,2014,Karen Gives Stock with a FMV of $7,500