Four years ago, Don, a single taxpayer, acquired stock in a corporation that qualified as a small business corporation under § 1244, at a cost of $60,000 . Don wants to give his son, Ron, $20,000 to help finance Ron's college education. The stock is
currently worth $20,000 . Don is considering selling the stock in the current year for $20,000 and giving the cash to Ron. As an alternative, Don could give the stock to Ron and let Ron sell it for $20,000 . Which alternative should Don choose?
Don should sell the stock. He will have a $40,000 ordinary loss deduction in the current year. Only the original holder of the stock (Don) qualifies under § 1244 for ordinary loss treatment. If Don gives the stock to Ron, Ron will have a basis of $20,000 in the stock and, thus, will have no loss deduction. A carryover basis for gifts applies unless fair market value of the property is less on the date of the gift and the property is sold at a loss.
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