Consider a no-load mutual fund with $400 million in assets, 50 million in debt, and 15 million shares at the start of the year a
nd with $500 million in assets, 40 million in debt, and 18 million shares at the end of the year. During the year investors have received income distributions of $.50 per share and capital gain distributions of $.30 per share. If the total expense ratio is .75%, what is the rate of return on the fund
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Answer: Gwen should report a $3,000 long-term capital gain in her income tax return.
In this question the price paid by Gwen’s mother for the shares is irrelevant because of her death.
The stock’s fair market value ($20) when Gwen inherited the shares (21st October 2015) is Gwen stepped up value.
Gwen’s gain from selling the shares is:
Gwen inherited the shares on (21st October 2015) and held the shares until (3rd july 2017), so she held the shares for more than one year after inheriting it. So, she will report a long-term capital gain on her income tax return.