Determine the realized and recognized gain or loss and the character of the gain or loss.

Emelio and Charita own stock in Software Corporation. They purchased 1,000 shares for $20 per share in July 2006. They paid $400 in brokerage commissions. On July 21, 2013, Software Corporation distributed a 2-for-1 stock split. The fair market value at the time of the split was $100 per share.

On July 21, 2008, Emelios father gave him 100 shares of stock in Flex Corporation. His father paid $35 per share in June 1999. The fair market value at the date of the gift was $45 per share.

Stock in Software Corporation: The basis is equal to the purchase price plus the additional costs to acquire the stock.

Purchase Price = (1,000 * $20) = $20,000

Brokerage Commissions = $400

Basis = $20,400

The stock split increases the number of shares to 2,000, and reduces the cost per share from $20.40 ($20,400 / 1,000) to $10.20 ($20,400 / 2,000) per share.

Gifted Stock in Flex Corporation: Because there is no realization upon the transfer of property from one taxpayer to another as a gift, the general rule for gift property is that the basis of the donor carries over to the donee (Murphy & Higgins, pg. 9-18). Therefore, Emilios basis is the same as his fathers basis of $3,500 ($35 * 100).

Asset: Software Corporation Stock

Date acquired: January 1, 2004

Initial basis: $20,400

Asset: Flex Corporation Stock

Date acquired: June 1, 1995

Initial basis: $3,500

Emelio raises the additional cash he needs to complete the building repairs by selling 100 shares of Software Corporation stock for $24 per share. (He pays brokerage commissions of $140.) He also sells 100 shares of Flex Corporation stock for $40 per share. (Brokerage commissions are $200.)