Question

In: Accounting

1. Wallace inherited stock from his uncle, who passed on 5/1/19. The uncle’s basis in the...

1. Wallace inherited stock from his uncle, who passed on 5/1/19. The uncle’s basis in the stock was $5,000. The fair market value on the date of his death was $15,000. Wallace then sold the stock on 9/1/19 for $4,000. What is Wallace’s gain or loss? Is it short-term or long-term?

2. Using the same information as in #1, however this time, the stock was a gift from his uncle. What is Wallace’s gain or loss, and is it short-term or long-term?

Solutions

Expert Solution

1)If the asset was held for one year or less, it’s a short-term capital gain. If the asset was held for greater than one year, it’s a long-term capital gain.

When a property is received on inheritance or as a gift, it is not taxable for the receiver. When the inheritor or the receiver of this gift of property sells it, capital gains on the sale are taxable for the inheritor.

The property will not cost anything to the inheritor, but for calculation of capital gain the cost to the previous owner is considered as the cost of acquisition of the property, and the fair value on date of death of the previous owner is of no relevance.

In the given case Wallace(inheritor) has inherited(or had been gifted) a stock from his uncle(previous owner),As date of purchase of the stock by Wallace's uncle is not specified in this case, assuming the stock had been purchased by previous owner before 9/1/2018 it will be a Long term capital gain(as the holding will be greater than a year), if the stock had been purchased after 9/1/2018 by the previous owner it would have been a short term capital gain(as the period of holding would have been less than a year).

2)The answer would remain same even if the stock was gift from his uncle


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