C is corrent. The requirement is to determine the amount of gain from the sale of stock that will be taxed to Susan on her 2013 income tax return. Losses are disallowed on sales of property between related taxpayers, including family members. Any gain later realized by the transferee on the disposition of the property is not recognized to the extent of the transferor’s disallowed loss. Here Joan’s realized loss of $36,000 — $30,000 = $6,000 is disallowed because she sold the stock to her sister, Susan. Susan’s basis for the stock is her cost of $30,000. On the subsequent sale of the stock to an unrelated third party, Susan realized a gain of $41,000 — $30,000 = $11,000. However, this realized gain of $11,000 is recognized only to the extent that it exceeds Joan’s $6,000 disallowed loss, or $5,000.
A is incorrect. Susan’s cost basis for the stock was $30,000.
B is incorrect. $6,000 of Susan’s gain is not recognized because of Joan’s disallowed loss.
D is incorrect. $6,000 of Susan’s gain is not recognized because of Joan’s disallowed loss.
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