“A” is in the 28% marginal income tax bracket. He acquired 400 shares of XYZ Inc
ID: 2719206 • Letter: #
Question
“A” is in the 28% marginal income tax bracket. He acquired 400 shares of XYZ Inc. Common stock two years ago for $60,000, but the stock’s current market value is $45,000. “A” plans to give 200 shares of the stock to each of his two granddaughters. Rowena is age 19 and Susan is age 12. Under these circumstances, all of the following statements are correct EXCEPT:
A. If “A” makes the gifts to the children, he will lose the tax benefit of the $15,000 loss available if he sold the stock.
B. “A” can use the $14,000 annual exclusion for both stock gifts.
C. If the grandchildren sell the stock immediately after receiving the stock, they both may take a loss based on “A’s” cost basis.
D. If Rowena keeps her stock, any dividends will be taxable at her marginal income tax bracket.
E. If Susan keeps her stock, any dividends in excess of $1,800 will be taxable at her parent’s marginal income tax bracket.
Can you provide a detailed explanation for your answer? Please only answer if you have a strong background in estate planning.
Explanation / Answer
The answer is "C"
In case of sale of stock by the gift receiver, the gain or loss shall be computed on the basis of fair value on the date of receipt of gift. In this case, loss shall be computed on the basis of $112.50 per share as the cost of stock.
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