Question

The class is "Individual Taxation". I have the following questions:

Q. Ten years ago, Edwin Ryan bought 100 shares of a listed stock for $5,000. In June of the current year, when the stock's fair market value was $7,000, Edwin gave it to his sister, Lynn.
No gift tax was paid. Lynn died in October of the same year, bequeathing the stock to Edwin, when the stock's fair market value was $9,000. Lynn's executor did not elect the alternate valuation date. What is Edwin's basis for his his stock after he inherits it from Lynn's estate?

Answer 1

Ans:-

Edwin's basis for his stock after he inherits it from Lynn's estate is $5,000.

Sec. 1014(a) , appreciated property is by the decedent by gift within 1 year of death and passes back to the donor (Edwin) by reason of the decedent's death, the beneficiary's basis cost 50000 in the property is its adjusted basis immediately prior to the decedent's death [(sec.1014(e)].

Since Lynn received the stock as a gift from Edwin within 1 year of her death, Edwin assumes Lynn's basis ($5,000), which was Edwin's basis when he made the gift.