Sale of Property Received as a Gift. During the current year, Stan sells a tract

Question

Sale of Property Received as a Gift. During the current year, Stan sells a tract of land for
$800,000. The property was received as a gift from Maxine on March 10, 1995, when the
property had a $310,000 FMV. The taxable gift was $300,000 because the annual exclusion
was $10,000 in 1995. Maxine purchased the property on April 12, 1980, for
$110,000. At the time of the gift, Maxine paid a gift tax of $12,000. In order to sell the
property, Stan paid a sales commission of $16,000.
a. What is Stan’s realized gain on the sale?
b. How would your answer to Part a change, if at all, if the FMV of the gift property was
$85,000 as of the date of the gift?

Explanation / Answer

a. 666,000
Sam's basis is the donor's basis plus the gift tax paid due to the increase in the value of the gift
the gift tax paid due to the increase is
12,000((310,000-110,000)/(310,00-10,000)) = 8,000
so the basis for Sam is 118,000 and the realized gain is 800,000-118,000-16,000=666,000

b. 674,000
in this situation, the basis is the same as Maxines (110,000)
amount realize is 800,000-110,000-16,000 = 674,000

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