Warren Buffett owns land that he received from his father 10 years ago as a gift
ID: 2569832 • Letter: W
Question
Warren Buffett owns land that he received from his father 10 years ago as a gift. The land was purchased by his father in 1995 for $5,000 and was worth $10,000 at the time of the gift. The property is currently worth about $50,000. He is considering selling the land and purchasing a piece of property in the mountains.
Warren Buffett also owns 800 shares of AppleCo stock. He inherited the shares from his grandfather when he died in 1998. Warren Buffett’s grandfather paid $10,000 for the shares and at the time of his death, the shares were worth $60,000. He is considering selling his shares.
Warren Buffett purchased a building in 2016 for $500,000. The building was destroyed by a fire on March 2017. Fortunately the building was partially insured. He received a reimbursement of $100,000.
Warren Buffett divorced his wife in 2017. In 2010, Warren Buffett and his wife purchased a home for $300,000. At the time of divorce, the home is worth $700,000. As part of the divorce, Warren Buffett receives the home. He wants to sell it for $700,000.
Warren Buffett has come to you for tax advice with respect to the land, shares, building and home. What is the recognized gain or loss for the land, shares and home if they are sold? What is recognized gain or loss for the building that was destroyed by the fire.
Explanation / Answer
CALCULATION OF GAIN/LOSS ON SALE OF LAND
sale consideration 50000
less:Cost of acquisistion 10000
Lonh term capital gain 40000
CALCULATION OF GAIN/LOSS ON SALE OF SHARES
Sale consideration 60000
less:indexed cost of acquisition (10000*1125/331) 33988
Lon term capital gain 26012
CALCULATION OF GAIN/LOSS ON SALE OF HOME
sale consideration 700000
less indexed cost of acquisition(300000*1125/711) 474684
Long term gain 225316
CALCULATION OF GAIN/LOSS ON SALE OF BUILDING
sale consideration 500000
less:cost of aquisition 100000
gain 400000
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