During the current year, Tom sells a tract of land for $850,000. The property wa

Question

During the current year, Tom sells a tract of land for $850,000. The property was received as a gift from Janell on March 10, 1995, when the property had a $300,000 FMV. The taxable gift was $290,000 because the annual exclusion was $10,000 in 1995. Janell purchased the property on April 12, 1980, for $184,000. At the time of the gift, Janell paid a tax of $8,000. In order to sell the property, Tom paid a sales commission of $18,000.

A. What is Tom's realized gain on the sale?

Amount Realized: $832,000 (I know this part)

Minus: Basis ______

Realized Gain _____

B. How would your answer to Part A. change, if at all, if the FMV of the gift property was $50,000 as of the date of the gift?

Tom would have realized a gain of $______ on the sale if the FMV of the gift property was $50,000 as of the date of the gift.

Explanation / Answer

A.

As the Tom's realized amount is $850000 - sales commission $18000 = $832000, which higher than the FMV of the gift "tract of land", so the basis of the property should be the donor's adjusted basis, which is purchase price + tax at the time of gift, i.e. $184000 + $8000 = $192000. Thus:

Amount Realized: $832,000 (I know this part)

Minus: Basis: $192000

Realized Gain : $ 640000

B. If the FMV of the gift property was $50,000 as of the date of the gift, than also Tom would have realized a gain of ($832000 - $ 50000) i.e. $782,000 on the sale if the FMV of the gift property was $50,000 as of the date of the gift. This is because the Donor's adjusted plus basis i.e. $192000, is higher than the FMV of $50000 of the gift property.

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