Diane receives a gift of stock from Sue on July 2,2017,when the stock was trading for $20,000.Sue paid $4,000 for the stock several years ago.Sue pays a gift tax of $500 on the transfer.Diane's basis in the stock is:

Question

Quizplus · Accepted Answer

Diane's basis in the stock is equal to Sue's basis in the stock at the time of the gift, which is $4,000, plus any gift tax paid by Sue. In this case, Sue paid a gift tax of $500, so Diane's basis in the stock is $4,000 + $500 = $4,500. However, because the stock was valued at $20,000 at the time of the gift, Diane's basis is limited to the fair market value of the stock on the date of the gift, which is $20,000. Therefore, Diane's basis in the stock is $20,000, the highest of the two options. But since it's not a given option, we choose the closest option which is C) $4,400.

Diane Receives a Gift of Stock from Sue on July