Five years ago, Bailey purchased 200 shares of Circus Clowns, Inc. for $4,000. Bailey recently gifted those shares of stock to his son Barnum. The value of the 200 shares of stock on the date of the gift was $2,000. Which of the following statements is correct?

If Barnum subsequently sells the shares of Circus Clowns, Inc. for $4,750, the basis used to calculate his gain or loss will be $4,000.

If Barnum subsequently sells the shares of Circus Clowns, Inc. for $4,750, the basis used to calculate his gain or loss will be $1,000.

If Barnum subsequently sells the shares of Circus Clowns, Inc. for $1,600, the basis used to calculate his gain or loss will be $4,000.

If Barnum subsequently sells the shares of Circus Clowns, Inc. for $1,600, he will not have any gain or loss.

Income Tax Question