Donor gave Donee property under circumstances that required no payment of gift t

Question

Donor gave Donee property under circumstances that required no payment of gift tax. What gain or loss to Donee on the subsequent sale of the property if: (a) The property had cost Donor $20,000 and fair market value of $30,000 at the time of the gift and the Donee subsequently sold the property for: i. $35,000? ii. $15,000? iii. $25,000? (b) The property had cost Donor $30,000, had a $20,000 fair market value at the time of the gift and the Donee sold it for: i. $35,000? ii. $15,000? iii. $24,000?

Explanation / Answer

a. (i) if the property is sold for $35,000 then the gain = sale price - basis = 35,000 - 20,000 = $15,000 gain

(ii) if the property is sold for $15,000 then there will be loss as the basis is $20,000 i.e the cost. (lesser of donor's basis or the fair market value is selected).

loss = 15,000 - 20,000 = $5,000 loss.

(iiii) in this case there is a gain of (25,000 - 20,000) = $5,000. (lesser of donor's basis or the fair market value is selected).

b. (i) if donee sold it for $35,000 then gain will be sale price - cost basis = 35,000 - 30,000 = $5,000 gain

(ii) if donee sold it for $15,000 then there will be a loss. (lesser of donor's basis or the fair market value is selected). Fair market value is lower at $20,000. loss = 15,000 -20,000 = $5,000 loss

(iii) if donee sold it for $24,000 then gain = $24,000 - $30,000 basis = 0 (i.e. no gain). loss = 20,000 fair market value - $24,000 = 0 (i.e no loss). Thus there is $0 gain or loss.

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