In May 2012, Edwin makes a gift of land (basis of $200,000 and fair market value

Question

In May 2012, Edwin makes a gift of land (basis of $200,000 and fair market value of $300,000) to Richard (Edwin's father), upon which Edwin pays a gift tax of $30,000. After the gift, Richard makes capital improvements to the property at a cost of $25,000. Richard dies in April 2013; the property then is worth $450,000. The alternate valuation date is not elected. Under Richard's will, the property passes to Edwin. Edwin's income tax basis is: Select one:

a. $255,000.

b. $450,000.

c. $235,453.

d. $200,000.

Explanation / Answer

Calculation of Edwin's income tax basis:

Tax Basis at the time of making gift to Richard (Edwin's father) = $200,000

Add: Gift Tax paid $30000

Add: capital improvements to the property $25000

Edwin's income tax basis = $255,000

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