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Question 1: Farr made a gift of stock to her child, Pat. At the date of gift, Farr's stock basis was $10,000 and
the
stock's fair market value was $15,000. No gift taxes were paid. What is Pat's basis in the stock for
computing gain?
A. $0
B. $5,000
C. $10,000
D. $15,000
Correct Answer: C
Explanation
Choice "c" is correct. Property acquired as a gift generally retains the rollover cost basis as it had in
the
hands of the donor at the time of the gift. Basis is increased by any gift tax paid that is attributable to
the
net appreciation in the value of the gift. Since there were no gift taxes paid, Pat's basis for computing
a
gain is the rollover cost (basis), $10,000.
Choices "a", "b", and "d" are incorrect, per the explanation above.
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