Josephine gave her son, Shane 700 shares of Creative Marketing Inc., common stock on May 26, 2014. Josephine originally paid $9,000 for the stock on April 15, 2014. At the date of the gift, the fair market value of the stock was $8,500. If no gift tax is paid and Shane sells the stock for $5,500 on May 26, 2015, he will recognize:

Question

Quizplus · Accepted Answer

Shane's basis in the stock is the same as Josephine's original cost basis of $9,000 because the fair market value at the time of the gift was less than the donor's basis and no gift tax was paid. Since Shane sold the stock for $5,500, he recognizes a short-term capital loss of $3,500 ($9,000 - $5,500) because he held the stock for less than a year.

Josephine Gave Her Son, Shane 700 Shares of Creative Marketing