Question

Estate Family Finance Family Tax Plan Question

1. Larry gives Jeff 1 share of David, Inc. stock on January 2, 2002 that has a basis of $200,000. On January 2, 2002, 1 share of David Inc. stock has a fair market value of $100,000. On January 2, 2004, Jeff sells the share to Leon for $210,000. How much income does Jeff recognize on the sale? Analyze what Jeff's basis is in the stock and why.

Answer 1

Answer :

(1). Income or loss to be recognized on the sale by Jeff.

Cakcukate the amount to be written off till Jan 02.2002, in the statment of profit and loss account

A decrease in value of share = share purchased from larry on Jan 02.2002 - Fair market value on Jan 02.2004

= $200,000 - $100,000

= $100,000

Calculate the profit and loss from the sale of share :

Profit and loss from the sale of share = Fair market value on Jan 02.2004 - Sale proceeds

= $100,000 -$210,000

= ($110,000)

Loss from the sale of share = $110,000

Jeff's basis in stock and why :

Shares should be recorded fair market value as per the accounting framework

Hence,

Jeff's is in stocls are as follows

Jeff's basis in stock on Jan 02.2002 = $200,000

Jeff's basis in stock on Jan 02.2004 = $100,000