Question

Brittany Callihan sold stock (basis of $184,000) to her son, Ridge, for $160,000, the fair market value. a. What are the tax consequences to Brittany? b. What are the tax consequences to Ridge if he later sells the stock for $190,000? For $152,000? For $174,000?

Answer 1

Answer:

(a) Brittany loss due to taxes = Basis - fair market value

                                                = $184,000 - $160,000

                                                = $24,000

Therefore, Brittany will have a $24,000 loss that is not deductible.

(b) Tax consequences to Ridge if he later sells the stock for $190,000 are as follows:

• Realized gain = $30,000 and Recognized as a gain for tax payers = $6,000

• Realized and recognized loss = $8,000
• There is no recognized gain for Ridge and unrecognized loss of $10,000. It is permanent lost.