Question

In: Finance

John Beck received a gift of 500 shares of Boeing stock from his dad (Bill Beck)...

  1. John Beck received a gift of 500 shares of Boeing stock from his dad (Bill Beck) on June 11, 2019. The stock had a fair market value of $72,000 on the date of the gift. Bill had purchased the shares on December 1, 2007 for $37,500. Bill had never made any gift larger than $10,000 in his lifetime prior to this gift.
  1. What is John’s basis in the Boeing stock? When does John’s holding period begin? EXPLAIN.

b.   Instead of John receiving the stock as a gift, assume that John inherited the stock in June 2019 due to his father’s death, which occurred on January 13, 2019. Further, assume that the fair market value of the stock at dad’s date of death was $72,000, and it was worth $96,000 when title passed to John in June. What is John’s basis in the Boeing stock? When does John’s holding period begin? EXPLAIN.

Solutions

Expert Solution

A) The cost basis of stock you received as a gift ("gifted stock") is determined by the giver's original cost basis and the fair market value (FMV) of the stock at the time you received the gift.

If the FMV when you received the gift was more the original cost basis, use the original cost basis when you sell. This is the most commonly-encountered situation.

If the FMV when you received the gift was less than the original basis, and you later sold the stock for:

More than the original basis, use the original basis.

More than the original basis but less than the FMV at the time of the gift, your selling price becomes the cost basis. You won't report a gain or loss in this situation.

Less than the FMV at the time of the gift, use the FMV at the time of the gift.

Holding period includes the time the person who gave you the shares held them. However, your basis might be the fair market value at the date of the gift. If so, your holding period of the gifted stock will begin the day after you received the gift.

So in first case John basis is 37500

And holding period start on the date of orignal purchace that is in 2007

B)Inherited stocks are equities obtained by heirs of an inheritance, after the original stock holder has passed.

The spike in a stock's value that occurs between the time the decedent bought the stock, until her or she dies, does not get taxed.

Inherited stock is not valued at its original cost basis, which refers to its initial value, at the time of its purchase.

When a beneficiary inherits a stock, its cost basis is stepped-up to the value of the security, at the date of inheritance.

So the basis is 96000

Holding period begins on date of title transfer


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