Question

On September 18, 2017, Jerry received land and a building from Ted as a gift. Jerry had purchased the land and building on March 5, 2014, and his adjusted basis and the fair market value at the date of the gift are as follows: Asset Adjusted Basis FMV Land $150,000 $200,000 Building $80,000 $100,000 No gift tax was paid on the transfer.

a. Determine Jerry's adjusted basis and holding period for the land and building.

b. Assume instead that the fair market value of the land was $89,000 and that of the building was $60,000. Determine Jerry's adjusted basis and holding period for the land and building.

Answer 1

Solution : Donor : Ted Donee : Jerry

a. Given below : Ignore Gift tax

Asset Adjusted Basis FMV

Land 150,000 200,000

Building 80,000 100,000

Since the FMV on the date of the gift is more than the Ted's basis, Jerry's adjusted basis would be Ted's adjusted basis only i.e. 150,000 for Land and 80,000 for building . Hence, the holding period starts from the date of Ted's acquisition itself i.e. March 5,2014.

b. Given : Ignore Gift tax :

Asset Adjusted Basis FMV

Land 150,000 89,000

Building 80,000 60,000

Since the FMV on the date fo the gift is less than the Donor's basis ,the donee has a dual basis for the property.

1- Loss Basis : The FMV at the date of the gift is used if the property is later transferred at a loss .( 89,000 and 60,000 respectively)

2- Gain Basis : The donor's basis is used if the property is later transferred at a gain. ( 150,000 and 80,000 respectively)

3- No Gain/loss : If the property is later transferred for more than the FMV at the date of the gift but less than the donor's basis at the date of the gift, no gain/loss is recognised.

Holding period :

Acquisition by and or Holding Period - Starts or by the reference to

Gift : for gain Donor' Acquisition - March 5,2014.

Gidt : for loss Acuisition date/gift date - September 18,2017