Just prior to a major operation Cody gives his son Martin st

Just prior to a major operation, Cody gives his son, Martin, stock in Robin Corporation (fair market value of $1,581,000 and basis of $2,213,400). At the time of the gift, Cody held some unused capital losses. The surgery is unsuccessful, and after Cody’s death, Martin sells the stock for $2,434,740.

a. What is the income tax result for Martin?

b. What if the gift had not been made and the stock passed to Martin as a bequest from Cody?

Solution

Answer for question (a):

Martin has to pay income tax on the capital gain he received under the head income from capital gains after deducting the cost of purchase of the stock by multiplying it with the index values. i.e Tax on $2,434,740 - ($2,213,400* Index value).

Answer for question (b):

If martin has got the stock as a bequest from cody then there is no need to pay any income tax as per the act.