Sadie sold 10 shares of stock to her brother, George, for $530 16 months ago. Sadie had purchased the stock for $660 two years earlier. If George sells the stock for $790, what are the amount and character of his recognized gain or loss in the current year?

Question

Quizplus · Accepted Answer

Sadie's basis in the stock was $660 and she sold it to her brother for $530, which results in a loss of $130. Since it has been more than one year from the purchase date, it is a long-term capital loss for Sadie. When George sells the stock for $790, he has a recognized gain of $260, which is the difference between the $790 sale price and the $530 purchase price. Since George held the stock for less than one year before selling it, his recognized gain is a short-term capital gain.

Sadie Sold 10 Shares of Stock to Her Brother, George