Question

Three years ago, Sam received a gift of 100 shares of common stock from his uncle. The fair market value of the stock on the date of the gift was $12 per share. His uncle had purchased the stock four years earlier at $5 per share. Sam sold this stock for $17 per share last week. What was Sam's per-share basis in the stock when it was sold?

A)$17
B)$5
C)$12
D)$22

Answer 1

Sam's per-share basis in the stock when it was sold is the original purchase price of the stock by his uncle, which is $5 per share (option B), because it is lower than the fair market value at the time of the gift, and less than Sam's selling price.

Step-by-step explanation:

The question pertains to determining the per-share basis of stock for tax purposes after a gift is received and then sold. In this scenario, the basis of the stock is the same as the donor's basis, provided that the fair market value at the time of the gift is greater than the donor's basis.


Since the uncle purchased the stock at $5 per share and the fair market value when Sam received it as a gift was $12 per share, the basis remains at $5 per share, which is the uncle's original purchase price. This is because Sam's selling price is higher than both the basis and the fair market value at the time of the gift, which implies that the original basis is used to calculate the gain. Therefore, the correct answer is B) $5.