Question

15. Ed's daughter, Gladys, transferred the ownership of her house to Ed 7 years ago as a gift. Gladys originally paid $50,000 for the house 15 years earlier. When she gifted the house to Ed, it was valued at $75,000. Ed died this year and left everything he owned to Gladys, including the house she originally gifted to him. At Ed's death in 2018, the house had a fair market value of $100,000. Gladys sold the house at the end of the same year for $150,000. What is Gladys' gain on the sale of the house for income tax purposes?

Answer 1

For income tax purposes,there is a difference between inheritance due to death and gift of property by a person during his lifetime. If a property is gifted during the lifetime, the donee's basis for that gifted property will be as that of Donor. So, Ed's basis will be $50,000.

But in case of Inherited property on the death of person, the basis for inheritor is the FMV of the property as on date of inheritance.

As Ed died and everything is inherited by Gladys, the basis for Gladys for the property will FMV i.e $1,00,000. The Gain on sale of house will be ($1,50,000- $1,00,000) = $50,000