Question

John's father, Emile, died on January 15of this year. Emile had owned stock for 10 years. It had a basis to Emile of $100,000. He gave the stock to Emile in 2016, at a time when it had a value of $300,000. On January 15 when Emile died, the stock, now owned by John, was worth $400,000. John sold the stock for $500,000 net of commissions on April 1of this year.

What is the amount and nature of John's gain or loss from sale of the stock, if anything?

Answer 1

Answer:

Emile gifted the stock to John. When stock is received as gift then the cost basis become the purchase price on the date of gifter bought the stock, unless the price is lower on the date of gift

Gain from sale of stock = Selling price - Purchase price

= 500000 - 100000

=$ 400000

And Capital Profit qualifies for Long Term Capital Gain as the year of Purchase will be considered when the John's Father Emile purchased it i.e. 10 years ago before dying and not when it was inherited by John.