Choice "B" is correct. To determine the amount of gain or loss that should be reported on the sale of gifted property, a determination must be made as to whether the property is sold at a gain or a loss. The stock in this question has a $27,000 value which is less than its $32,000 cost. The basis for gain is the adjusted basis of the donor on the date of gift, or $32,000. However, the stock is sold for $29,000, which is not at a gain. The basis for loss is the lower of the adjusted basis or the fair market value on the date of gift, or $27,000. However, the stock is not sold at a loss. In this situation, neither gain nor loss is recognized, and the "middle" basis of the subsequent sales price is used.
Choice "c" is incorrect. The stock is not sold at a gain. The basis would have had to be $27,000 for the stock to be sold at a $2,000 gain ($29,000 - $27,000). That is the fair market value on the date of gift, but it is not the basis used when the property gifted is sold at a gain.
Choice "d" is incorrect. The stock is not sold at a gain. The basis would have had to be $26,000 for the stock to be sold at a $3,000 gain ($29,000 - $26,000). It is difficult to determine how that basis could have been calculated.
Choice "a" is incorrect. The stock is not sold at a loss. The basis would have had to be $32,000 for the stock to be sold at a $3,000 loss ($29,000 - $32,000). That is the adjusted basis of the stock, but it is not the basis used when the property gifted is sold at a loss.