Basis of gifted stock

[oceanlovin'ea]

I read TTB page 21-33 and 34 but I am still confused.

Grandma gave stock to grandson in Dec 2006. She bought the stock in 1983 for $10 per share. FMV at the time of gift was $75 pers share.

Grandson sold stock in January 2007 for $69 per share.
I think according to example, I would use FMV for basis. But the illustration shown is for stock bought at higher price than at time of gift. This stock was bought at a lower price than FMV at time of gift.

What is his basis? Grandma's cost or FMV?

Thanks for the help. Don't have this come up very often and it's near the end of the day.

Linda F

[LawrenceGR]

Grandma's

Basis is what should be used as I understand it. It is nice of grandma to be so generous but the kid will have to pay the tax.

[Matt Sova]

Gift

Basis is the donor's basis so the kid has a gain of $59/share (69 - 10 grandma cost). If he had inherited the stock his basis would be FMV at date of death.

[Bees Knees]

The general rule as others have stated is that basis in property received as a gift equals the donor’s basis in the property.

An exception to this rule is for property that has gone down in value when it is gifted, and the property is sold for a loss. In this case, the basis is the lower of the donor's cost basis or the FMV of the property at the time of the gift.

Example illustrated in TTB says:

Example #1: Phyllis purchased stock for $15,000 and gave it to Terry
when its FMV was $10,000. Terry’s basis depends on the sale price
received when she sells the stock:
• Sale for $20,000. Terry’s basis for gain is $15,000.
• Sale for $8,000. Terry’s basis for loss is $10,000.
• Sale for $12,000. When property is sold for less than the donor’s basis
but more than FMV at the time of the gift, there is no gain or loss. Basis
for gain is $15,000 so sale for $12,000 produces no gain. Basis for loss
is $10,000 so sale for $12,000 produces no loss. (Reg. §1.1015-1)

Since your example is one where the FMV is higher than the donor’s basis at the time of the gift, then the general basis rule for gifts apply. Your clients basis is the donor’s basis of $10 per share.

[oceanlovin'ea]

Thanks

Thanks guys. You are a big help.

Linda F