Sonya owns 500 shares of Roxy Corp. that she bought in 2019 for $10 per share. On June 1, 2020 Sonya sold all of her shares to her sister for $15 per share and then later the same day her sister sold the shares for their fair market value of $18 per share. The taxable capital gain that should be reported for each sister is:

Question

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Sonya's capital gain is calculated as the difference between her selling price ($15 per share) and her purchase price ($10 per share), multiplied by the number of shares (500), resulting in a $2,500 gain. However, because transactions between siblings are considered at fair market value for tax purposes, Sonya's gain is recalculated as the difference between the fair market value ($18 per share) and her purchase price ($10 per share), resulting in a $4,000 gain. Her sister's capital gain is the difference between her selling price ($18 per share) and her purchase price ($15 per share), multiplied by the number of shares (500), resulting in a $1,500 gain. However, I made an error in my initial calculation. The correct taxable capital gain for Sonya is indeed $2,500 (500 shares * ($15 - $10)), and for her sister, it is $1,500 (500 shares * ($18 - $15)). However, the options provided do not accurately reflect these calculations, indicating a mistake in my explanation regarding the application of tax rules to these transactions. The correct interpretation should be based on the actual transactions without assuming adjustments for fair market value, leading to Sonya's gain being based on her sale price to her sister, and her sister's gain based on the sale to a third party.

Sonya Owns 500 Shares of Roxy Corp