Question

The following gifts are received and sold in the current year:

Donor's Adjusted Basis FMV at Time of Gift Gift Tax Paid Selling Price a. $100,000      $400,000      $40,000      $350,000      b. 100,000      80,000      8,000      70,000      c. 100,000      30,000      6,000      40,000

Determine the basis for gain and basis for loss and realized gain or realized loss. Enter "0" if the field should be blank or if an amount is zero.

Basis for Gain Basis for Loss Realized Gain Realized Loss a. $ $ $ $ b. $ $ $ $ c. $ $ $ $

Answer 1

The general rule for property received provides that the donee receives a carryover of the donors basis. If the FMV of the gift is greater than the donors basis, the gift tax paid by the donor on the net appreciation is added to the donees basis. When the FMV is less than the donors basis, the split basis rule applies. The split basis rule provides that the donees basis for gain is the donors basis (carryover basis) and the FMV at the date of the gift is the basis for loss.

a. Donors basis $ 100,000

Gift tax on the net appreciation

[($300,000 ( $400,000) x $40,000] 30,000

Donees Basis for gain and loss $ 130,000

Amount Realized $ 350,000

Basis (130,000)

Realized Gain $ 220,000

b. The gift tax is not added to the basis of the property because the FMV at the date of the gift is less than the donors basis. Basis for gain is $100,00 and basis for computing loss is $80,000.

Amount Realized $ 70,000

Basis (80,000)

Realized Loss $ (10,000)

c. The gift tax is not added to the basis of the property because the FMV at the date of the gift is less than the donors basis. There is no realized gain or loss because the asset is sold for an amount that is between the gain basis ($100,000) and the loss basis ($30,000).

Amount Realized $ 40,000

Basis (40,000)

Realized Gain $ -0-