Paula transfers stock to her former spouse, Fred.The transfer is pursuant to a divorce agreement.Paula's cost of the stock was $75,000 and its fair market value on the date of the transfer is $95,000.Fred later sells the stock for
$100,000.Fred's recognized gain from the sale of the stock is $5,000.

Question

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Fred's basis in the stock is the same as Paula's basis, which is $75,000. When he sells the stock for $100,000, his recognized gain would be $25,000.

Paula Transfers Stock to Her Former Spouse, Fred