Diane receives a gift of stock from Sue on July 2, 2018, 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 (the donor's basis) at the time of the gift, which is $4,000. However, because Sue paid a gift tax on the transfer, Diane's basis is increased by the amount of the tax, which is $500. Therefore, Diane's basis in the stock is $4,000 + $500 = $4,500.

Diane Receives a Gift of Stock from Sue on July