Question

Jo's father Raul died on January 10, 2019. The father had owned stock since 2014 with a basis of $225,000 that was transferred to Jo when Raul died. The stock was worth $150,000 on the date of the father's death. Jo sold the stock for $175,000 net of commissions on February 23, 2019. Jo had no other sources of income during 2019.

What is the amount of Jo's gain or loss from disposition of the stock?

What is the nature (long or short term) of Phil's gain or loss from disposition of this?

What is Jo's taxable income for 2019?

Answer 1

1) The cost of acquisition for the asset inherited by the family member would be the original cost of acquisition of the previous owner i.e the cost at which Jo's father acquired the property ($225,000) in this case. The value of the stock on the day of inheritance i.e on the day of Jo's father's death, is of no importance for calculating the capital gains. Therefore the amount of Jo's gain or loss is as follows:

Particulars	Amount
Sales price net of commissions	175,000$
Less: Cost of acquisition	225,000$
Long term capital loss	50,000$

2) For the nature of capital gain or loss in case of sale of inherited asset, the period of holding of the previous owner would also be considered. Therefore, in this case, the period of holding of the asset when held by Jo's father would also be considered for deriving whether the capital gain or loss is long term or short term.

As explained above, the period of holding of the stock would be from 2014 to 23rd February 2019 i.e around 5 years. Therefore the loss on disposition of stock would be termed as long term.

3) As Jo doesn't have any other source of income, his taxable income would be zero. The loss of $50,000 would be carried forwarded into next year.