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This question is a part of BIF's Special Webinar series which was created to help students affected by the July 2020 CFP® Exam postponement to September 2020.
A mother's basis in stock is $400,000 and she gifts the stock to her daughter when it is worth $360,000. Eight months later, the daughter sells the stock for $380,000. Identify the correct tax treatment of the daughter’s sale.
- $20,000 long-term capital gain
- $40,000 short-term capital gain
- $20,000 long-term capital loss
- No capital gain or loss
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Correct answer: D. No capital gain or loss
Instructor insight:
Since the FMV of the initial gift is lower than the original basis AND the sale price falls between the mother's original basis ($400,000) and the FMV on the date of the gift ($360,000), the daughter recognizes no capital gain or loss on the sale.
CFP® Exam insight:
When a gift is transferred at a loss, the ensuing sale price will serve as a cue to identify the correct basis for calculation of capital gains or capital losses. Work toward understanding the three potential paths to tax treatment with a gifted loss property that is eventually sold.
