Warren Buffett owns land that he received from his father 10 years ago as a gift
ID: 2568084 • 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
A. 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.
A sale of property is reported to the Internal Revenue Service as a capital gain consisting of the difference between sale proceeds and the seller's basis in the property. Although basis is usually the seller's cost, inherited property is different. The normal basis for inherited property is its value on the date of death for the decedent who bequeathed it.
The following things needs to be looked into while reporting sale of Inherited Property.
Mr. Warren Buffet sold the inherited property, however value will be determined only at the time of death person who gifted the property.
B.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.
Selling Investment Property
If you inherited stocks, bonds or mutual funds, the money you get from the sale is passive income. A passive gain or loss is taxed as a capital gain or loss. Your capital gains are taxed at a maximum of 28 percent. For example, if you sell your inherited stock and make $1,000, your maximum tax would be $1,000 multiplied by 28 percent, or $280.
Mr. Buffet sold the 800 Shares for an amount of $ 60,000. Cost of these share is $10,000, that was paid at the time of death of death. Hence $50,000 (60,000-10,000) is taxable.
C. 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.
Generally, you may deduct casualty and theft losses relating to your home, household items, and vehicles on your federal income tax return. You may not deduct casualty and theft losses covered by insurance, unless you file a timely claim for reimbursement and you reduce the loss by the amount of any reimbursement or expected reimbursement.
Casualty Losses - A casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. A casualty doesn't include normal wear and tear or progressive deterioration.
If your property is personal-use property or isn't completely destroyed, the amount of your casualty loss is the lesser of:
Mr. Warren Buffet house is completely destroyed, hence he can claim the difference amount $ 400,000 (500000 - 100000) is deductable.
D. 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.
Depends on how long you owned and lived in the home before the sale and how much profit you made. If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.
If you are married and file a joint return, the tax-free amount doubles to $500,000. The law lets you "exclude" this much otherwise taxable profit from your taxable income. (If you sold for a loss, though, you can't take a deduction for that loss.)
If you received your home from your former spouse as part of a divorce after July 18, 1984, your tax basis generally will be the same as your basis as a couple at the time of the divorce. So if your former spouse was the sole owner of the home, his or her basis becomes your basis. If the place was jointly owned, you now claim the full basis.
If you divorced before July 19, 1984, your basis will generally be the fair market value at the time you received it.
Mr. Warren Buffet inherited the house through Divorce. The cost of the House is $ 300,000 when they are living together. Mr. Buffet wants to sell the house $ 700,000. His capital gain is $400,000 (700000-300000). However he can claim exemption of $ 250,000, since he is a divorce.
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