Question

Donald sells stock with an adjusted basis of $38,000 to his son, Kiefer, for its fair market value of $30,000. Kiefer sells the stock three years later for $32,000. Kiefer will recognize a gain on the subsequent sale ofA) $0.B) $2,000.C) ($6,000).D) ($8,000).

Answer 1

Answer:

The correct option is A

Explanation:

Gain on sale of stock = Selling Price - Cost

                                    = $32,000 - $30,000

                                    = $2,000

Previously disallowed loss = Market Value - Basis

                                            = $30,000 - $38,000

                                            = ($8,000)

Taxable Gain = Previously disallowed loss - Gain on sale of stock

                       = ($8,000) - $2,000

                       = ($6,000)

The previously disallowed loss could not decrease the gain below 0. Therefore, the Kiefer will recognize the gain at $0.