I believe the correct answer is C. If someone could please double heck for me.
Trina gave her nephew Roy 100 shares of HLM Corporation stock that she purchased 6 months ago for $10,000. At the time of the gift, the fair market value of the stock was $12,000. Which of the following statements concerning the stock is correct?
a. If Trina sold the stock, she would have realized a long- term capital gain.
b. Roy’s basis in the stock is $10,000.
c. Roy’s basis in the stock is $12,000.
d. If Roy sells the stock immediately after the gift, he will realize a long-term capital gain.
To determine the correct statement concerning the stock, we need to understand the concept of basis and how it applies to gifts of stocks.
Basis refers to the amount of money that a person initially invested in an asset, and it is used to determine tax consequences when the asset is sold. In the case of gifts, the recipient's basis in the gifted asset is typically the same as the basis of the person who gave the gift, unless the fair market value of the gift is lower than the donor's basis.
In this scenario, Trina gave her nephew Roy 100 shares of HLM Corporation stock that she purchased 6 months ago for $10,000. However, the fair market value of the stock at the time of the gift was $12,000. This means that Roy's basis in the stock will be the fair market value at the time of the gift, which is $12,000, as mentioned in option C.
Option A is incorrect because Trina has not sold the stock; she gifted it to Roy.
Option B is incorrect because Roy's basis in the stock is the fair market value at the time of the gift, not the purchase price.
Option D is incorrect because Roy will not realize a long-term capital gain immediately after receiving the gift. Whether a gain is classified as long-term or short-term depends on how long the asset was held by the person who gifted it, not on how long the recipient holds it.
Therefore, the correct statement concerning the stock is option C: Roy's basis in the stock is $12,000.
The correct answer is c. Roy’s basis in the stock is $12,000.
When stock is gifted, the recipient receives the donor's basis in the stock, which in this case is $12,000. Therefore, Roy's basis in the stock is also $12,000.
Option a is incorrect because Trina did not sell the stock. Option b is incorrect because Roy's basis is not $10,000, but rather the fair market value at the time of the gift, which was $12,000. Option d is also incorrect because the stock has not been sold by Roy immediately after the gift.