Zeek Zapota owned forty acres along a main road between the downtown area and an
ID: 2517196 • Letter: Z
Question
Zeek Zapota owned forty acres along a main road between the downtown area and an affluent suburb of Reno, Nevada. He obtained the property for $500 per acre in 1955. Zeek gifted the property to his daughter, Zella, in 2005. An appraisal estimated that the property value at the time of the gift was $5,000 per acre. Recently, Zella received an offer of $12,250 per acre. Explain the income tax implications for Zella of an outright sale of the property. Is there an alternative to the sale which might allow Zella to escape current income taxes? Explain how that might work.
Explanation / Answer
As we can see that Zeek purchased this property in 1955 for 500$ per acre and later gifted the property to zella in 2005. Now that the property is more than 1 year 1 year old it will treated in long term capital gains.
Since the property was held for more than a year it would be considered under Long term capital gains Tax bracket. The IRS taxes long-term capital gains at a substantially reduced rate as a means of encouraging individual to keep their invesment for more than a year of time and to encourage long term investments.
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