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, what is the amount and character of his recognized gain or loss in the current year?

Question

Quizplus · Accepted Answer

Sadie's loss of $100 is deferred and her brother receives a dual basis in the stock. If he sells the stock at a gain, he receives a $600 carryover basis from Sadie. If he sells the stock at a loss he receives a $500 cost basis in the stock. George's holding period begins when he buys the stock, so he receives a $100 ($700 proceed less $600 basis) long-term gain on the sale.

Sadie Sold 10 Shares of Stock to Her Brother, George