Question

Brent received 1,000 shares of Alabama Corporation stock from his uncle as a gift on July​ 20, 2017​, when the stock had a $275,000 FMV. His uncle paid $ 100,000 for the stock on April​ 12, 2002. The taxable gift was $ 275,000​, because his uncle made another gift to Brent for $25,000 in January and used the annual exclusion. The uncle paid a gift tax of $13,750. Without considering the transactions​ below, Brent's AGI is $75,000 in 2018. No other transactions involving capital assets occur during the year.

Analyze each transaction​ below, independent of the​ others, and determine Brent's AGI in each case. ​(Do not round intermediary calculations. Only round the amounts you input in the cells to the nearest dollar. Use a minus sign or parentheses to enter a​ loss.)

a. He sells the stock on October​ 12, 2018​, for $281,000.

b. He sells the stock on October​ 12, 2018​, for $106,750.

c. He sells the stock on December​ 16, 2018​, for $269,000.

Answer 1

Given that the fair value of gifted stocks is 275000....while the cost of acquisition on date of acquisition to donor is 100000.

As per IRS....if you sell the gifted stock at profit, the cost base for tax should be considered as original cost to the donor plus any gift tax paid....I e., 100000+13750= 113750.

Given that the AGI with out including income on sale of stock is...75000.

a) if stock is sold at 281000....the fair value is 275000....which was sold at 281000....hence it is sold at profit. So cost base is actual cost to donor plus gift tax paid i.e., 113750 as computed above.

Taxable gain = sale -cost base= 281000-113750= 167250.

Adjusted gross income is 75000+167250=$ 242,250.

b) if stock is sold for 106750....it means it is sold at loss ...then as per IRS, the cost base shall be lower of cost to original owner or fair market value....plus gift tax paid ..

Here for to owner is 100000. Fair market value is 275000....lower is 100000 plus gift tax is 13750. So, the cost base is 100000+13750= 113750.

Since the stock is sold for 106750, the loss is 113750-106750= 7000.

The capital loss can be used to set off the capital gains...how ever, if no capital gains are available, the capital loss can be used to set off ordinary income upto 3000 per year.

So, out of capital loss of 7000, 3000 can be set of in current year.

So, the adjusted gross income is 75000-3000=$ 72,000.

C) if the stock is sold for 269000.....that is for loss, since the fair market value is 275000. So, as discussed above, the cost basis will be original cost as it is lower than fair market value plus gift tax i.e., 113750.

Gain on sale of stock is 269000- 113750= 155250.

This has to be added to adjusted gross income of 7500/.

So,adjusted gross income is 75000+ 155250= $230,250.

Hope it helps,

Thank u.