Norman received shares of stock as a gift from his uncle in 2014.At the time of the gift,the stock had a FMV of $5,000.The uncle purchased the stock in 2012 and had a basis of $6,000.If Norman sells the stock for $7,000 in 2016,he will report a:

Question

Quizplus · Accepted Answer

To calculate the gain, we use the following formula: 
Gain = Amount realized - Adjusted basis

The amount realized is the selling price, which is $7,000.

The adjusted basis is the original cost basis plus any adjustments. In this case, since the stock was a gift, the adjusted basis is the same as the donor's basis. So the adjusted basis is $6,000.

Therefore, the gain is: 
Gain = $7,000 - $6,000 = $1,000

Since the stock was held for more than one year before being sold, the gain is a long-term capital gain.

Norman Received Shares of Stock as a Gift from His