Final answer:
Rosa will have to report a capital gain of $4,000 from the sale of stock that was transferred to her as part of a divorce settlement with Paul. The cost basis was $12,000. The capital gain is calculated by subtracting the cost basis from the sale price.
Step-by-step explanation:
When Paul transfers stock to Rosa as part of a divorce settlement, the cost basis of the stock transfers with it. Paul's original cost, or cost basis, was $12,000 and this becomes Rosa's cost basis as well. At the time of the transfer, the stock's market value was $15,000, but this does not affect the cost basis.
When Rosa later sells the stock for $16,000, she realizes a capital gain on the sale. To calculate the capital gain, one must subtract the cost basis from the final sale price. Rosa's capital gain is therefore:
Sale price - Cost basis = Capital gain
$16,000 - $12,000 = $4,000
This $4,000 represents the income that Rosa must report on her tax return. No income is reported by Paul in relation to this stock transaction as the transfer is part of a divorce settlement and he is not the seller of the stock.
Considering scenarios like Example A from the references provided, where transaction costs are involved in the buying and selling of stocks, Rosa would need to deduct any associated transaction costs to ascertain her exact net profit. However, in this scenario, transaction costs are not mentioned.
Based on the provided references, if the stock transaction had associated costs, the principle would be the same - costs such as transaction fees would need to be deducted from the gross profit to determine the net profit. For instance:
- Profit before fees: $4,000
- Transaction costs: X amount
- Net profit: $4,000 - X amount
It is important to understand these basic concepts to accurately assess the financial outcomes resulting from the sale of stocks, whether it is following a divorce settlement or a typical investment scenario as elaborated in the references like the cases of buying shares in companies such as Wal-Mart or calculations involving profits from firms like Babble, Inc.