Sadie sold 10 shares of stock to her brother, George, for $500 six months ago. S

Question

Sadie sold 10 shares of stock to her brother, George, for $500 six months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what is the amount and character of his recognized gain or loss in the current year? Sadie sold 10 shares of stock to her brother, George, for $500 six months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what is the amount and character of his recognized gain or loss in the current year? Sadie sold 10 shares of stock to her brother, George, for $500 six months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what is the amount and character of his recognized gain or loss in the current year?

Explanation / Answer

Answer:

Sadie's brother receives a dual basis in the stock and the loss of $100 is deferred.

When the stock is sold at a gain, he receives a carryover basis of $600 carryover basis from Sadie.

But when he sells the stock at a loss he receives a $500 cost basis in the stock also Sadie's basis and holding period are transferred to George.

So there is a gain and he receives a $100 ($700 proceed less $600 basis) long-term gain on the sale.

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