Question

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

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). Answer :- Basis (at the time of receiving gift) = $ 10,000 (Adjusted basis of donor of gift).

b). Answer :- Loss on disposal of asset = 5000 - 2000

= $ 3,000.

Note :- FMV of gift (as on date of making the gift) will be considered for figuring (calculating) the loss on disposal of asset in the given question. If the sale price of asset is between $ 5000 and $ 10000 then there would be neither any gain nor any loss on the sale / disposal of asset.

Conclusion :-

a). Basis (when receiving the gift)	$ 10000.
b). Loss on asset disposal	$ 3000.