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Flashcards: Basis of Assets Received by Gift or Inheritance

Parent gave securities with an adjusted basis of $10,000 and fair market value of $9,000 to a child. Later the child sold the securities for $7,000. What is the child’s basis for the securities sold?

$10,000

$7,000

$9,000

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Flashcards: Basis of Assets Received by Gift or Inheritance

$10,000

$7,000

$9,000

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Flashcards: Basis of Assets Received by Gift or Inheritance

Your answer:

$10,000

Your answer:

$7,000

Your answer:

Correct answer:

$9,000

Explanation:

The general rule with gifts is that the donor’s basis rolls over to the recipient. The exception, however, is when FMV at the time of transfer is lower than the donor’s basis and the recipient sells the assets at a price lower than the FMV at the time of transfer. In this case, the recipient’s basis in the sold stock was the FMV at the time of the gift.

Flashcards: Basis of Assets Received by Gift or Inheritance

Ann purchased 100 shares of stock for $50 per share. Ten years later, Ann died on February 1 and bequeathed the 100 shares of stock to a relative, Blake, when the stock had a market price of $100 per share. One year later, on April 1, the stock split 2 for 1. Blake gave 100 shares of the stock to another of Ann’s relatives, Greg, on June 1 that same year, when the market value of the stock was $150 per share. What was Greg’s basis in the 100 shares of stock when acquired on June 1?

$15,000

$10,000

$5,000

$5,100

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Flashcards: Basis of Assets Received by Gift or Inheritance

Your answer:

$15,000

Your answer:

$10,000

Your answer:

$5,100

Correct answer:

$5,000

Explanation:

In an inheritance, unless an alternative valuation date is selected the beneficiary’s basis in the received property is the FMV at the time of the donor’s death (here, 100 stocks at $100 per share, or $10,000). At the split, the basis remained the same, but the value and number of stocks changed (now 200 stocks at $50, still $10,000 total). In a gift, typically the recipient’s basis is that of the donor’s, which means that Greg received 100 stocks with a basis of $50 per share, or a total basis of $5,000.

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