Sally Robbins gifted depreciable business equipment to her brother, John. Which

Question

Sally Robbins gifted depreciable business equipment to her brother, John. Which of the following statements with respect to that gift is NOT correct?

A) Sally reports the gift on Form 709 at its current fair market value.

B) John’s basis in the property is the same as Sally’s adjusted basis at the time of the gift.

C) Sally must report gain on her Form 1040 equal to the difference between the value and adjusted basis of the property, or the total depreciation she claimed, whichever is less.

D) John must report any gain on his sale of the equipment as Section 1245 recapture (ordinary income) to the extent of the depreciation claimed by Sally, whether or not he uses the property for business purposes.

Explanation / Answer

A gift is always made at the current fair market value and that is the amount that Sally would report on the form 709 that he is responsible to file.
The recipient of a gift always takes the basis of the donor on a gift received. If the fair market value is higher, John would continue to depreciate the property in the same manner that Sally had been. If the fair market value is lower you would continue to depreciate the property but the depreciation base would be the fair market value not the original cost.

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