@Mike9241 wrote:
.......If it later appreciated to $900 and was sold, then under IRC 267 he could use that $400 loss to offset the gain?
Yes, the donee could use the loss that was not recognized to offfset the gain per Section 267(d)(1).
Also, if he makes a total gift of the stock, then his basis (assuming his basis is the same or less than FMV at the time of the gift) is transferred to the donee and he has no ability to sell the stock after the gift has been completed. The donee takes his basis and has a $400 gain if the stock is later sold for $900.
Note that if you had sold the stock to me (non-related) for $100, you could have immediately recognized a loss of $400 (assuming there was no donative intent).
The scenario you described (like the one in this thread) is why I mentioned earlier that it's not a great strategic move from a tax standpoint.
