CPA Regulation (REG) : Holding Period
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Example Questions
Example Question #1 : Holding Period
In Year 4, Julie received a gift of 20 shares stock valued at $30 per share from an uncle that the uncle had held since Year 1. In Year 1, the stock was purchased at $20 per share. At the date of the gift, the basis and holding period of the gift were:
$600, long-term
$400, long-term
$400, short-term
$600, short-term
$400, long-term
In a gift transaction, typically the donor’s basis and holding period pass to the recipient. So, since the stock was originally purchased three years ago at $20 per share, the 20 shares have a basis of $400 and a long-term holding period.
Example Question #2 : Holding Period
A taxpayer inherited property from a deceased relative. The fair market value at the date of death was $20,000. An alternative valuation date was elected by the executor of the estate. The property was worth $18,000 six months later and was worth $24,000 when it was distributed to the taxpayer 9 months later. It had a cost basis to the deceased of $4,000. If the beneficiary sold the property for $23,000, what would be the recognized gain by the taxpayer and the nature of the gain?
$3,000, long-term
$5,000, short-term
$5,000, long-term
$3,000, short-term
$5,000, long-term
For inheritance, the basis of the donor passes to the beneficiary. The value, however, is the FMV at the time of death or at an alternative valuation date no more than six months from the date of death (if elected). Since the alternative valuation date was elected, the basis of the property to the beneficiary was $18,000. So, if the taxpayer then sold the property for $23,000, the recognized gain would be a long-term gain of $5,000.
Example Question #2 : Holding Period
If a gift of property has a fair market value below the donor’s basis, what is the basis and the holding period of the gift to the recipient?
FMV, short-term
Donor’s cost, long-term
Donor’s cost, short-term
FMV, long-term
FMV, short-term
Generally, a donor’s basis and holding period passes onto the recipient. However, if the FMV is below the donor’s basis, then the recipient’s basis is FMV and the holding period starts at the date of the gift (thus being short-term).
Example Question #3 : Holding Period
Per tax regulations for the year 2020, of a decedent’s estate, which amount would be effectively the maximum applicable for estate and a gift tax credit?
$5,000,000
$11,000,000
$15,000
$0
$11,000,000
The actual amount tax-free would go up to $11,580,000 however of the answers provided, $11,000,000 is the largest. $15,000 is the amount for the annual gift tax exclusion.
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