Question

**Please prepare a short research "memo" responding to
this client question:**

Our client, **H.G. Lucky**
**received** an acre of land as a gift several years
ago. At the time of the gift the land had a FMV of $8,000 and the
donor’s basis was $10,000. No events occurred to increase or
decrease H.G.’s basis. H. would like to sell it for $7,000 so he
can go on a River Cruise he saw on Masterpiece Theatre. His wife,
has no interest in a River Cruise and thinks the land can be sold
for $12,000. What is the net amount he will receive if he sells it
for the $7,000 or if he sells it for what his wife believes it is
worth, $12,000. Assume a 15% tax rate.

Answer #1

If the FMV of the property at the time of the gift was less than the donor's adjusted basis, your basis for loss on its sale or other disposition is its FMV at the time of the gift. So here, If he sells the land for $7000 - Net loss is $8000 - $7000 = $1000, there is loss, hence no tax. Net reciept will be $7000.

If the FMV of the property at the time of the gift was less than the donor's adjusted basis, your basis for gain on its sale or other disposition is the same as the donor's adjusted basis. Here, If he sells the land for $12000 - Net profits is $12000-$10000 = $2000, receipt(after tax) will be 12000 - (15% of 2000) - $11,700

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