Question

leo purchased 600 shares of stock on December 20, 2017 for $5,200. Leo died on January 8, 2018 and less son, sal inherited the 600 shares. the fair market value of the shares on January 8, 2018. was $6,000. the fair market value of the shares on July , 2018 was $5,000. Leos estate properly made an alternative valuation date election. Sal sold the 600 shares on September 22, 2018 for 5,800. what is the amount and character (short term or long term) of sals gain?

Answer 1

Leo purchased 600 shares of stock on 20 Dec 2017 at $5200

Leo died on Jan 8, 2018.

Sal inherited 600 shares on Jan 8, 2018.

FMV on Jan 8, 2018 was $ 6000

People who receive assets as gifts are subject to different rules than those who inherit assets. When someone inherits noncash assets, the basis is usually whatever the asset’s value is on the date of death—this is called a step up in basis.

There are a few exceptions. The executor of a large estate who files an estate-tax return can choose to set the basis at the value six months after the owner died rather than at the date of death.

Leos estate properly made an alternative valuation date election.

The fair market value of the shares on July , 2018 was $5,000

Thus, the basis will be $5000.

A taxable gain or loss is always long-term when the shares are inherited, regardless of how long you own them.

Therefore, Sal will have long term capital gain or loss.

Amount realized..........................................$5800

Adjusted basis (Sal's basis)........................(5000)

Realized gain on sale.................................$800

Thus, there is a $800 long term capital gain.