Question

Phil’s father, who died on January 10, 2018. had owned stock for 20 years with a basis of $45,000 that was transferred to Phil as a gift on August 10, 2017, when the stock was worth $430,000. Phil's father had paid no gift taxes. This stock was worth $566,000 at the date of the father’s death. Phil sold the stock for $545,000 net of commissions on February 23, 2018.

a) What is the amount of Phil’s gain or loss from the sale of this property?

b) What is the nature(character) of Phil’s gain or loss from the sale of this property?

Answer 1

Answer a)

Gain will be calculated as follows : -

Cost is to be considered as that of the previous owner. SInce it is a gift. Cost will be 45000 and Sales consideration will be 545,000 net of taxes.

Gain : -

Sales Consideration = 545,000

less : - Cost of Acquisition = (45000)

Capital Gain = 500,000

Answer b)

In case of inherited gift, the holding period of the previous owner is also calculated. Phil's father held the securities for 20 years. So, naturally it becomes the Long term Capital Gain.

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