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Ross receives 50 shares of ABC Co. as a gift, then later inherits an additional 50 shares of ABC Co. The shares were all originally purchased at $10/share. When Ross receives the shares as a gift, they are worth $20/share. When Ross inherits the shares, they are worth $30/share. When Ross eventually all sells the shares, they are worth $50/share. What is Ross’s total cost basis when he sells the shares?
Correct Answer: B. $2,000
Rationale: Inherited shares received a stepped up cost basis based on their market value at the time of the prior owner’s death. Shares received as a gift maintain their original cost basis. So the cost basis of the inherited shares is $1,500 ($30/share * 50 shares) while the cost basis of the gifted shares is $500 ($10/share * 50 shares). Adding them together gives a total cost basis of $2,000.
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