Paula transfers stock to her former spouse,Fred.The transfer is pursuant to a divorce agreement.Paula's cost of the stock was $50,000 and its fair market value on the date of the transfer is $75,000.Fred later sells the stock for $78,000.Fred's recognized gain from the sale of the stock is $3,000.

Question

Quizplus · Accepted Answer

Since the transfer is pursuant to a divorce agreement, it qualifies as a transfer incident to divorce, which means Fred takes over Paula's cost basis in the stock. Therefore, Fred's basis in the stock is $50,000, and his recognized gain from the sale is $28,000 ($78,000 - $50,000).

Paula Transfers Stock to Her Former Spouse,Fred