Chapter 6, Problem 52P

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

1. a. What are the tax consequences to Brittany?
2. b. What are the tax consequences to Ridge if he later sells the stock for $190,000? For $152,000? For $174,000?
3. c. Prepare your solution using spreadsheet software such as Microsoft Excel. The spreadsheet should compute the gain or loss for Ridge for all scenarios. Use the IF function to compute the right of offset.
4. d. Write a letter to Brittany in which you inform her of the tax consequences if she sells the stock to Ridge for $160,000. Explain how a sales transaction could be structured that would produce better tax consequences for her. Brittany’s address is 32 Country Lane, Lawrence, KS 66045.