Question

Jay-Z owns land that he received from his father 10 year ago as a gift. The land was purchased by his father in 1984 and was worth $20,000 at the time of gift. Jay-Z’s father did not owe gift taxes upon making the transfer. The property is currently worth about $80,000. Jay-Z is considering selling the land and purchasing a piece of undeveloped property in the mountains.

Jay-Z also owns 800 shares of Microsoft stock. 300 of which were acquired as an inheritance when his grandfather died in 1997. Jay-Z’s grandfather paid $12,000 for the shares, and the shares were worth $40,000 at the time of his death. The other 500 shares of Microsoft stock were purchased by Jay-Z fourteen months ago for $60,000. The stock is currently worth $130 per share and Jay-Z is considering selling the shares.

In addition, Jay-Z owns a house that he inherited from his grandmother five years ago. His grandmother lived in the house for over 50 years. A developer has recently offered Jay-Z $800,000 for the house. His grandmother purchased the house for $20,000 and at the time of her death, the house was worth $500,000.

The building Jay-Z used in his music business was destroyed by fire on October 5, 2017. Fortunately the building was insured for $220,000. Jay-Z purchased the building for $25,000 and added capital improvements of 60,000, a month after purchase. The insurance company has agreed to reimburse Jay-Z the full insurance amount. Jay-Z intends to use the proceeds to purchase another building for his music business for $120,000 and to pay off his loans, which amounts to $100,000.

Jay-Z purchased a land from Beyonce on 1/1/2017 for $400,000. He would like to sell the land on 12/31/2017 for $500,000.

You are a well-known accountant in Beverly Hills. Jay-Z seeks your tax advice on all of these transactions.

Answer 1

1)Jay-Z has to pay tax on Capital gain of amounting to Rs60000 i.e.in excess of Market value over the worth of property at the time of gift

2)Cost Basis of Sales received on inherticance will be FMV on the date of inheritance

Details	300 shares	500 Shares
Current Share price	$130	$130
Cost Basis	40000	60000
Sale value	39000	65000
Capital gain/(Loss)	-1000	5000

3)

Offered Price	800000
Cost Basis = FMV on death	-500000
Capital Gain	300000

4)

Insurance Received	220000
Less: Cost of Building	-25000
Less: Cost of improvements	-60000
Less: Cost of new Building	-120000
Capital Gain	15000

5)

Sale Value = 500000

Less: Cost basis = -400000

Short Term Capital gain = $100000

Note: Tax rates for 2018

Long-term capital gains tax rate	Your income
0%	$0 to $38,600
15%	$38,601 to $425,800
20%	$425,801 or more

For Short term Capital gains tax rate is as per the Ordinary Income taxed according to federal income tax brackets