Question

Multiple choice questionzack received a gift of stock from his uncle on june 20 of the current year. zack's uncle had a basis in the stock of $4,000, but the fair market value of the stock on june 20 was only $1,500. zack held the stock for three months and then sold it for $1,200. what basis in the stock will zack use to determine his gain or loss on the sale of the stock?multiple choice question.

O $1,500
O $1,200
O $0
O $4,000

Answer 1

Zack will use a basis of $1,500 to determine his loss on the sale of the stock, which is the fair market value on the date of the gift since the sale price was less than both the fair market value and his uncle's basis.

Step-by-step explanation:

When Zack received a gift of stock from his uncle, he acquired it with his uncle's original basis, which was $4,000.

This basis does not adjust to the fair market value on the date of the gift since there was no gain situation (fair market value was less than the basis).

When Zack ultimately sold the stock for $1,200, this sale price was less than both the fair market value at the time of the gift and the uncle's basis.

According to IRS tax rules, to determine loss on a sale of gifted property, one would use the lesser of the giver's basis or the fair market value at the time of the gift, if the sale price is lower than both.

Therefore, Zack will use a basis of $1,500 to determine his loss on the sale.