Question

3. Julia purchased land three years ago for $50,000. She gave the land to Robert, her brother, in the current year, when the fair market value was $70,000. No gift tax is paid on the transfer. Robert subsequently sells the property for $63,000. a. What is Robert’s basis in the land, and what is his realized gain or loss on the sale? b. Assume, instead, that the land has a fair market value of $45,000 and that Robert sold the land for $43,000. Now what is Robert’s basis in the land, and what is his realized gain or loss on the sale?

Please consider changes from TCJA 2017

Answer 1

Solution:

a. What is Robert’s basis in the land, and what is his realized gain or loss on the sale?

Robert’s basis in the land = Julia purchased land three years ago.

= $50,000

Current year:

Details	Amount($)
Sale value of the property	$63,000
Less: Robert’s basis in the land	($50,000)
Capital gain realized on sale	$13,000

Note:

Being cost is less than fair market value.

b. Assume, instead, that the land has a fair market value of $45,000 and that Robert sold the land for $43,000.

Robert’s basis in the land = Fair market value as on the date of gift in current year.

= $45,000

Current year:

Details	Amount($)
Sale value of the property	$43,000
Less: Robert’s basis in the land	(45,000)
Capital loss realized on sale	($2,000)

Note: Being fair market value is less than cost.