[Anonymous]

Carter purchased 100 shares of stock for $50 per share. Ten years later, Carter died on February 1 and bequeathed the 100 shares of stock to a relative, Boone, when the stock had a market price of $100 per share. One year later, on April 1, the stock split 2 for 1.

Boone gave 100 shares of the stock to another of Carter’s relatives, Dixon, on June 1 that same year, when the market value of the stock was $150 per share.

What was Dixon’s basis in the 100 shares of stock when acquired on June 1?

A. $5,000

B. $5,100

C. $10,000

D. $15,000

Answer: A, 5000. When the shares are bequeathed to Boone, his basis in the shares is the fair market value at the date of death, which is $100 per share. When the stock splits 2 for 1, Boone then owns 200 shares of stock with a basis of $50 each. When the shares are gifted to Dixon, she takes the basis in the stock that Boone had, or $50. Therefore, Boone’s total basis is $5,000 (100 shares x $50 per share).

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So let me get this straight:

Carter gives 100 shares to Boone: Boone’s basis in stock is $10,000 for 100 shares (which is FMV at time of exchange)

Boone gives 50 shares to Dixon (after stock split): Dixon’s basis in stock is 5000 (which is not FMV at time of exchange)

If Boone’s basis in the stock is the FMV at the time Carter gives it to Boone, then why do you not also use FMV for the basis when Boone gives the stock to Carter?

[LaxCPA]

The difference is Boone receives it after Carter's death so he is entitled to a step up to the FMV on the date of death (or 6 months after date of death I believe). If you simply receive stock as a gift your basis in the stock is the same as the basis of the person whom gave you the stock (plus the amount of any gift tax paid by the gifter?). Does that Help? Someone please correct me if I am wrong anywhere.

[Anonymous]

Oh, gotcha. It seems that I forgot the part about where transfer upon death is different. Thanks man.

[Author]

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