Question

Zack received a gift of stock from his uncle two years ago. Zack's uncle had a basis in the stock of $4,000, but the fair market value of the stock on the date it was given to Zack was only $1,500. Zack held the stock until this year and just sold it for $4,200. What basis in the stock will Zack use to determine his gain or loss on the sale of the stock?

Answer 1

Zack's adjusted basis is $4,000

Step-by-step explanation:

Given:

Zack's uncle's basis in stock = $4,000

Fair value when stock was given as gift = $1,500

Sale value = $4,200

Zack's adjusted value in stock will be $4,000 as uncle's adjusted basis in stock was more than fair value of $1,500. Moreover, sale value of $4,200 is also more than his uncle's adjusted basis.

If FMV is less than original adjusted basis and sale value is more than original adjusted basis, then adjusted basis of the stock at the time of sale is its original adjusted basis which is $4,000 in this case.