Brittany Callihan sold stock (basis of $184,000) to her son, Ridge, for $160,000, the fair market value. a. What are the tax consequences to Brittany? Brittany will have a $ loss that is not deductible

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Brittany Callihan sold stock (basis of $184,000) to her son, Ridge, for $160,000, the fair market value.

a. What are the tax consequences to Brittany?

b. What are the tax consequences to Ridge if he later sells the stock for $190,000?

What are the tax consequences to Ridge if he later sells the stock for $152,000?

What are the tax consequences to Ridge if he later sells the stock for $174,000?

The Answers are:

a. 24000 loss that is not deductible

b. realized gain of 30,000 and 6,000 recognized gain

recognized.

realized loss of 8000

there is not recognized gain to ridge the 10000 of unrecognized loss is permanently loss

Hence, for the sake of better understand of the steps taken to achieve the answers, we can alternatively calculate it thus:

a) Brittany loss due to taxes = Basis - fair market value

= $184,000 - $160,000

= $24,000

Thus, Brittany will have a loss of $24,000 that is not deductible.

(b) Tax consequences to Ridge if he later sells the stock for $190,000 are as follows:

Realized gain = $30,000

Recognized as a gain for tax payers = $6,000

Realized and recognized loss = $8,000

There is no recognized gain for Ridge and unrecognized loss of $10,000.

It is permanent lost.

Brittany's tax consequence will be paying tax on Revenue generated from the sale of her stock regardless the loss she incurred Brittany will have a $24000 loss that is not deductible

Explanation:

Tax consequences to Brittany

Basis of Brittany's stock = $184000

fair market value = $160000

Brittany made a loss of = 184000 - 160000 = $24000 hence her tax consequence would be paying tax on the revenue gotten from the sale of her stock even after making a loss of $24000

Brittany would encounter further loss than she encountered while she sold her stocks at a reduced price because the tax she would pay would not consider her loss of $24000 as deductible