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Father also give his granddaughter Pepsi stock worth $10,000 (his cost $5000) on January 1, 2019....

Father also give his granddaughter Pepsi stock worth $10,000 (his cost $5000) on January 1, 2019. She sold it on June 1 for $20,000 and wants to know the tax result. Is there any difference if she inherited the stock? 2. Fiduciary tax calculation Golden Family Trust is not required to pay out any of its income to its two beneficiaries, Au Golden and Ima Golden. The trust allocates income and expense according to standard state law. Tax year is 2019. The trust does not distribute anything to the beneficiaries. Compute the trust taxable income.

Income Bank 3/5/7 Interest $20,000

Pepsi dividends 5,000

Net Long term capital gain 10,000

Expenses

Fiduciary fees 2,000

tax preparation fees 500.

Solutions

Expert Solution

1.(a) When stock of Pepsi received by granddaughter as gift and market value is more than original cost then , use original cost basis when sale of stock

here Granddaughter sold stock on 1st June 2019 for $20000

and original cost basis is $ 5000

Capital gain =$15000.

Holding period in case of property gifted and stock basis taken as original cost then period shall be determined from original holder of property.Here we assume peiod of holding is not more than one year then capital gain is treated as short term capital gain. Therefore short term capital gain= $15000

Tax shall be

15% * $15000= $2250

*As per IRC gift tax applicble to doner who transfers his property with or without consideration

(b)If She is inherited stock then the stock basis is fair market value at the time of inheritence

therefore Stock basis = $10000.

On June 1st 2019 she sold stock for $20000.

Capital gain = $10000

In case of inheritence of property, loss or gain on susequent distribution of property treated as long term loss or gain regardless of how long beneficiary hold the property.

here

Then long term Capital gain =$10000.

tax rate on long term capital gain in case of Trust & estates

0% tax rate on capital gain up to $2600

15% tax rate on %2601- $12700

Therefore tax on long term capital gain is

up to $ 2600 * 0%=0

on ($10000-2600) i.e $7400 * 15% =$1110.

2).

Income of trust

Income of trust include income from investment , dvidend but not include capital gain

*Income of trust = interest income + dividend

$20000+ $5000=25000

*Taxable Income =

Capital gain 10000

Less; Fiduciary fees 2000

Tax preparation fees 500

Therefore Txable income= 7500.

ekkarill92 answered 1 year ago

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