"An individual buys 100 shares of ABC stock at $35. This person dies when the stock is trading at $60, and leaves the shares to his son. The son sells the stock when it is trading at $55. Which statement is TRUE?"

Complete/Correct Question:

An individual buys 100 shares of ABC stock at $35. This person dies when the stock is trading at $60, and leaves the shares to his son. The son sells the stock when it is trading at $55. Which statement is TRUE?

A. The son's cost basis is the same as the father's

B. The son's cost basis is based upon the market value at the time of the father's death

C. The son's cost basis is the market price of the security at the time that the stock was sold

D. The son's cost basis cannot be determined with the given information

B, The son's cost basis is based upon the market value at the time of the father's death.

Explanation:

For tax purposes, securities are usually valued at the current market value at the date of date. This means that estate tax is based upon the value of assets held as at the said time. Any beneficiary of the estate will have the asset at the market value ($60).

For the above question, the son of the dead man will have the securities at the market value at the time of his father's death; $60. Selling at at a market value of $55 is a loss as calculated by the cost basis of the asset.

Cheers.

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