Question

You receive a gift from your friend. Your friend bought the asset for $10,000 and, therefore, your friend’s cost basis in the asset is $10,000. The FMV of the asset is $5,000 on the date of the gift. You own the asset for 2 years and then you sell it for $6,000.

a.What is your basis when you receive the gift? State fully any applicable rule, and show your work in an easy to read, organized fashion.

b.What is your gain or loss when you dispose of the asset? State any applicable rules fully, and show your work in an easy to read, organized fashion.

Answer 1

a) The basis for gain is $10000 and basis for loss is $5000

b) Gain basis calculation

Amount realized $6,000
Basis for gain (10,000)
Realized gain $ –0–

Note that a realized loss of $4,000 results if the basis for gain is used.

Loss basis calculation:

Amount realized $6,000
Basis for loss (5,000)
Realized loss $ –0–

Note that a realized gain of $1,000 results if the basis for loss is used.

Since the amount realized of $6,000 is between Scott’s loss basis of $5,000 and gain basis of $10,000, neither gain nor loss results.