Question

1.            John buys shares of stock in Acme Corp. on January 1, 2018 for $50. He gifts the stock to Mary on July 1, 2018 when the stock has a fair market value (fmv) of $60. Mary sells the stock on September 1 , 2018 for $80.

               a.            What is the gain /loss recognized by John?      ______________  

                              What is the character of the gain/loss? _____________

               b.            What is the gain /loss recognized by Mary?     ______________  

                              What is the character of the gain/loss? _____________

2.            Same facts as in Question 1 except the value of the shares when the gift is made is $40.

               a.            What is the gain /loss recognized by John? ______________  

                              What is the character of the gain/loss? _____________

               b.            What is the gain /loss recognized by Mary?     ______________  

                              What is the character of the gain/loss? _____________

3.            Same facts as in Question 1 except Mary Sells the stock on May 1, 2019.

               a.            What is the gain /loss recognized by John?     ______________  

                              What is the character of the gain/loss? _____________

               b.            What is the gain /loss recognized by Mary?      ______________  

                              What is the character of the gain/loss? _____________

Answer 1

1 (a)	Gain/loss recognized by John
	No gain/loss will be recognized by John as he gifted the stock and
	has not sold them. He does not received any selling price.
(B)	Gain/loss recognized by Mary
	Selling Price of Stock	$80
	Cost basis of Stock (cost basis of John)	$50
	Gain	$30
	The Character of gain is short-term as the stock is sold before one year from
	the date of purchase
2 (a)	Gain/loss recognized by John
	No gain/loss will be recognized by John as he gifted the stock and
	has not sold them. He does not received any selling price.
	Gain/loss recognized by Mary
	Selling Price of Stock	$80
	Cost basis of Stock	$40
	Gain	$40
	The Character of gain is short-term as the stock is sold before one year from
	the date of purchase
3 (a)	Gain/loss recognized by John
	No gain/loss will be recognized by John as he gifted the stock and
	has not sold them. He does not received any selling price.
(B)	Gain/loss recognized by Mary
	Selling Price of Stock	$80
	Cost basis of Stock (cost basis of John)	$50
	Gain	$30
	The Character of gain is long term capital gain as the stock is sold after one year
	from the date of purchase
	When someone receives a gift, the holding period includes the holding period
	of the original owner (donor), the cost basis of the property sold is the cost
	basis of the original owner. But if the fair market value of the property is lesser
	than the cost basis on the date of gift, the cost basis of the gifted property will
	be the fair market value on the date of gift.