Can someone please check my answer to the following question.

Jill bought 500 shares of stock on October 22,2005 for $30,000. On March 25, 2006 she gave half the shares to her sister when the fair market value was $55 per share. If Jill's sister sells the property for $14,000, what is her gain or loss?

My answer : 250 gain
My work: 30000/500= 60 per share
500 shares/2= 250 shares
55*250=13750
14000-13750=250 gain

This is fairly complicated question. First of all, Jill gave a gift worth $13750. She should have paid a gift tax. In 2006, the annual exclusion was $12000. The presence of a gift tax really mucks things up.

For now, lets ignore the gift tax.

To solve the problem, you need to figure out the sister's basis in the stock. As I understand the IRS rules concerning gifts, for a sale to have a gain, the price per share would need to be ABOVE the donor's basis or ($60 per share in this example). For the sale to be a loss, the price per share would need to be BELOW the fair market value at the time the gift was received ($55 in this example). Sales prices between these two amounts have neither a gain or loss. Since the sales price is 14000/250=$56, I assert there is no gain or loss.

Go to IRS.gov Pub 17 for more details. (Find the section discussing the basis of property received as a gift.)

To find out if there is a gain or loss, you should consider two different possibilities:

1. If the fair market value at the time of the gift was higher than Jill's sister's basis, then there would be a gain.
2. If the fair market value at the time of the gift was lower than Jill's sister's basis, then there would be a loss.

In this case, the fair market value at the time of the gift was $55 per share, and the sister sold it for $14,000, or $56 per share.

To determine the sister's basis in the stock, you need to look at the fair market value at the time of the gift. Since the fair market value was $55 per share, which is lower than the $60 per share Jill initially paid, the sister's basis in the stock is $55 per share as well.

Now, compare the sister's basis ($55) to the sales price of $56 per share:
- If the sales price is higher than the basis, there is a gain.
- If the sales price is lower, there is a loss.

In this case, since the sales price of $56 is just slightly higher than the sister's basis of $55, there is a very minimal gain of $1 per share.

Therefore, the correct answer is a gain of $1 per share, not $250 as you initially calculated.

Note: It is important to consider other factors such as gift tax rules and any potential tax implications. For more detailed information on this specific scenario, it is recommended to consult IRS Publication 17 or seek professional tax advice.