Question

5. Holly has received various gifts over the years. She has decided to dispose of the following assets she received as gifts (assume for each of the gift transactions that no gift tax paid). Please answer the questions for each alternative scenario.

a. In 1997, she received a land worth $98,000. The donor's adjusted basis was $ 110,000. Holly sells the land for $102,000 in 2017.

Gift property basis:

Holly’s gain/loss on the sale:

b. In 2001, she received stock in Gold company worth $28,000. The donor's adjusted basis was $25,000. Holly sells the stock for $35,000 in 2017.

Gift property basis:

Holly’s gain/loss on the sale:

c. In 2008, she received stock in Silver Company worth $35,000. The donor's adjusted basis was $38,000. Holly sells the stock for $ 20,000 in 2017.

Gift property basis:

Holly’s gain/loss on the sale:

Answer 1

If FMV of gift is less than doner's adjusted cost basis, basis for calculating gain or loss will be different in foloowing scenario's :-

1. if the selling price is between FMV and adjusted cost, then there will be no loss or gain.
2. if the selling price is more than adjusted cost, then adjusted cost will be considered as basis for calculating gain.
3. if the selling price is less than FMV, FMV will be considered for calculating loss.

however, if at the time of gift, FMV is more than adjusted cost, then adjusted cost will be considered as basis.

A) Since FMV is less than adjusted cost and selling price is between FMV and adjusted cost, there will be no profit or loss.

B) Since FMV is more than adjusted cost, adjusted cost willl be considered as basis. accordingly there will be 10000 profit i.e. difference between SP and adj. cost.

C) Since FMV is less than adjusted cost and selling price is less than FMV, loss will be calculated using FMV. accordingly loss will be of 15000 (35000-20000)