Sadie sold 10 shares of stock to her brother, George, for $500 six 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 held the stock for more than a year, so it is a long-term capital asset. She sold the stock to her brother for $500, which is less than her purchase price of $600. Therefore, Sadie incurred a capital loss of $100 ($600 - $500). George's basis in the stock is the same as Sadie's basis, which is $500. When George sells the stock for $700, he recognizes a long-term capital gain of $200 ($700 - $500).

Sadie Sold 10 Shares of Stock to Her Brother, George