[Ken]

Hi,

My understanding with the Gift Tax Basis is this:

o Loss on Sale of Property

§ Basis is FMV on date of gift

o Gain on Sale of Property

§ Basis is same as Donor

o No G/L if Donor Basis < Sales price < FMV @ gift date

I have this problem and I can not quite explain the answer:

Problem:

Jack owned a ruby ring with a cost of $2000. He gave the ring to Diane who sold the ring. Indicate the taxable gain or loss that Diane should recognize:

FMV at time of gift = 2300. Selling Price = 2200. The answer should be no gain or loss on diane’s tax effect on sale. Is that right because price is greater than basis but less than FMV ? But the answer is gain on $200. Here is the book explaination: To compute a taxable gain on the sale of gift, the sale price is compared with the basis of the property to the previous owner. Sale price is 2200 less previous basis of $2000 give a gain of $200. Whyyyyyyyyyyyyyyyyy??

Please help?

REG : 62, 67, 81. Tick- Expire 01/02/2016
BEC : 72, 67,71,76. Tick Expire 10/25/2015
AUD : 60, 62, 62, 74(8/30) - 10/1/2015 - oh geez
FAR : 68, 64, 72(7/24) - 10/20/2015- oh geez

I am WHINING...

" Just take it without worrying about the 75. Man, that is not easy!"

[Anonymous]

that rule only applies when the FMV is lower then the adjusted basis. Therefore since it isn't you use the adjusted basis and recognize the gain.

[Amay]

I agree with Elias, there are different rules depending on whether FMV is higher or lower than the donor's basis. If you have Becker, look at pg. R4-11. If the FMV is HIGHER than the Donor's basis, then you automatically use the donor's basis to determine the gain (which is the case in your question above)

However, if the FMV is LOWER than the Donor's basis, then it depends on the selling price and you apply the rules you listed:

If SP > Donor's basis, use Donor's basis to determine gain.

If SP < FMV, use FMV to determine loss.

If SP is in between Donor's basis and FMV, then no gain or loss.

Thinking about it this way, may help you.

BEC: 73, 81
AUD: 85
FAR: 71, 77
REG: 74, 75...finally DONE! 😀

*This is my 2nd attempt at the CPA exam. For all of you who have failed this exam many times, given up on it, or taken a break like me, remember that it is still possible to finish what you started...failure is the opportunity to begin again more intelligently 🙂

[Ken]

thank you, that really makes sense.

REG : 62, 67, 81. Tick- Expire 01/02/2016
BEC : 72, 67,71,76. Tick Expire 10/25/2015
AUD : 60, 62, 62, 74(8/30) - 10/1/2015 - oh geez
FAR : 68, 64, 72(7/24) - 10/20/2015- oh geez

I am WHINING...

" Just take it without worrying about the 75. Man, that is not easy!"

[Author]

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