Question

Becky Bell owned common stock in a corporation that she purchased two years ago for $25,000. On June 6, 2016, Becky sold the stock for its $11,000 fair market value to her son, Max Monroe. On December 19, 2016, Max sells the stock to an unrelated party for its $13,000 fair market value. How much gain or loss will Becky and Max recognize on their respective income tax returns for 2016?

1) $0 and $0, respectively.

2) ($14,000) and $0, respectively.

3) ($14,000) and $2,000, respectively.

4) $0 and $2,000, respectively.

5) None of these.

Answer 1

The Tax Cuts and Jobs Act of 2017 incorporated major tax reforms and one such chang is for years 2018 through 2025, of the way long-term and short term capital gains are taxed. Earlier, long-term capital gains taxes were tied to ordinary federal income tax rates and taxed accordingly. Post amendment, long-term capital gains have own tax brackets ranging from a 0 % bracket for $0 to $38,601 in qualifying dividends or long-term capital gains, to a 20 % bracket for gains of $425,801 and higher. Although one avoid the gift tax, the recipient will have to pay a capital gains tax if he makes a profit off the shares.

in the given case, Bechy Bell shall record loss of ($14,000) and son will have to offer income of $2,000 as taxable. Beecky Bell can carry over her loss to later years for offsetting with any future capital gain.