In 2013, Fay sold 100 shares of Gym Co. stock to her son,
Martin, for $11,000. Fay had paid $15,000 for the stock in 2009.
Subsequently in 2013, Martin sold the stock to an unrelated third
party for $16,000. What amount of gain from the sale of the
stock to the third party should Martin report on his 2013 income
tax return?

(b) The requirement is to determine the amount of gain
from the sale of stock to a third party that Martin should report
on his 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, Fay’s realized loss of $15,000 – $11,000 =
$4,000 is disallowed because she sold the stock to her son, Martin.
Martin’s basis for the stock is his cost of $11,000. On the
subsequent sale of the stock to an unrelated third party, Martin
realizes a gain of $16,000 – $11,000 = $5,000. However, this
realized gain of $5,000 is recognized only to the extent that it exceeds
Fay’s $4,000 disallowed loss, or $1,000.