Question

Y received stock as a gift from her father in 2019. Her father purchased the stock several years ago of $30,000. The stock was worth $20,000 at the time the gift was received. Y sold the stock for $18,000 in 2020.

1.How much gain or loss, if any, should Y report on her 2020 tax return?

2.Assume the same facts as above, except that Y sold the stock for $25,000. How much gain or loss, if any, should Y report on her 2020 tax return?

Answer 1

At the time of sale of gifted stock, the difference between donor's cost (the person who has gifted the stock) and sale value will be capital gain or loss. The value of stock at the time of the receipt of the gift, need not be considered.

1. Calculation of gain or loss to be reported on Y's 2020 tax return:

Sale Value = $18,000

Donor's Cost = $30,000

Gain or (loss) = $18,000 - $30,000 = ($12,000).

2. Calculation of gain or loss to be reported when the stock is sold for $25,000:

Sale Value = $25,000

Donor's Cost = $30,000

Gain or (loss) = $25,000 - $30,000 = ($5,000).

Note: Whether the gain or loss is long term or short term, it depends on the holding period.