Warren Buffett owns land that he received from his father 10 years ago as a gift
ID: 2568688 • 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
Dear Student,
Cost of land when acquired as a gift from father would be considered as of on the date when the land was actually purchased ie of the date in 1995 . So cost of land is $ 5,000 & is propsed to be sold at current market value of $ 50,000; so taxable capital Gain is $ 45,000;
Capital Gain in sale of share = $ 60,000 less 10,000 = $ 50,000
Net loss on building is $ 400,000;
Capital Gain on sale of home = $ 700,000 less 300,000 = $ 400,000
Regards,
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