This year, Janet transfers 100 shares of stock to Ben as part of their divorce decree. Janet paid $10,000 for the shares. They are worth $18,000 on the day they are transferred to Ben. He sells the shares six months later for $22,000. What is his gain on the sale of the stock?
a. Incorrect. There is zero gain recognized when the property is initially transferred. However, when the property is sold, the transferee spouse will recognize the gain on the property.
b. Incorrect. This assumes that the spouse”s basis in the property is $4,000 ($22,000 – $18,000), which is incorrect. The recipient spouse”s basis is not determined by the value of the property on the date he or she received it but is instead a carryover basis from the other spouse.
c. Correct. The recipient spouse”s carryover basis is the other spouse”s basis ($10,000), so gain is limited to $12,000 ($22,000 – $10,000).
d. Incorrect. The recipient spouse has some basis in the stock, so the entire amount received ($22,000) is not the gain reported.