In 2006, Edwin Ryan bought 100 shares of a listed stock for
$5,000. In June 2012, when the stock’s fair market value was
$7,000, Edwin gave this stock to his sister, Lynn. No gift tax was
paid. Lynn died in October 2012, bequeathing this stock to Edwin,
when the stock’s fair market value was $9,000. Lynn’s executor
did not elect the alternate valuation. What is Edwin’s basis
for this stock after he inherits it from Lynn’s estate?

(b) The requirement is to determine Edwin’s basis for
the stock inherited from Lynn’s estate. A special rule applies if a
decedent (Lynn) acquires appreciated property as a gift within
one year of death, and this property passes to the donor (Edwin)
or donor’s spouse. Then the donor’s (Edwin’s) basis is the basis
of the property in the hands of the decedent (Lynn) before death.
Since Lynn had received the stock as a gift, Lynn’s basis before
death ($5,000) becomes the basis of the stock to Edwin.