Sadie sold 10 shares of stock to her brother, George, for $500 sixteen months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700 six months later, what is the amount and character of his recognized gain or loss in thecurrent year?

Question

Quizplus · Accepted Answer

George's holding period is 22 months (16 months from Sadie to George plus 6 months from George to the buyer). Since the holding period is more than 12 months, the gain is long-term capital gain. The amount of the gain is $700 - $500 = $200. However, since the stock was originally purchased by Sadie for $600, George's basis in the stock is $500. Therefore, the recognized gain is $700 - $600 = $100.

Sadie Sold 10 Shares of Stock to Her Brother, George