Paula transfers stock to her former spouse, Fred. The transfer is pursuant to a divorce agreement. Paula's cost of the stock was $75,000 and its fair market value on the date of the transfer is $95,000. Fred later sells the stock for $100,000. Fred's recognized gain from the sale of the stock is $5,000. True or false?

False

Explanation:

Given:

Paula's cost of the stock = $75,000

Fair market value on the date of the transfer = $95,000

Selling cost of the stocks = $100,000

Now,

The gain recognized = Selling cost of the stocks - Paula's cost of the stock

or

The gain recognized = $100,000 - $75,000 = $25,000

for calculating the gain the cost at the time of buying will be considered not the market value at the time of transfer.

Hence,

the recognized gain of $5,000 is false.

The recognized gain is $25,000