Question

Juliana purchased land three years ago for $50,000. She gave the land to Tom, her brother, in the current year, when the fair market value was $70,000. No gift tax is paid on the transfer. Tom subsequently sells the property for $63,000.

a. What is Tom’s basis in the land, and what is his realized gain or loss on the sale?

b. Assume instead that the land has a fair market value of $45,000 and that Tom sold the land for $43,000. Now what is Tom’s basis in the land, and what is his realized gain or loss on the sale?

Answer 1

Income tax:

Income tax is the tax that a person is liable to pay on the income generated during the year. It is not same for all taxpayers. It changes as per the income level. Income tax is calculated as per income slabs.

 

a.

In the case of gift, the adjusted basis is the fair market value or the basis of the property, whichever is lower. Hence, the adjusted basis is $50,000.

 

b.

The realized amount is $43,000.

 

In the case of gift, the adjusted basis is the fair market value or the basis of the of the property, whichever is lower. Hence, the adjusted basis is $45,000.

 

Calculate the realized gain/loss as follows:

Realized gain/loss = Realized amount - \adjusted basis

                              = 43,000 – 45,000

                              = ($2,000)

 

The realized loss is ($2,000).