Question about basis of gifts gain/loss

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Question about basis of gifts gain/loss

13 posts from 4 voices

Started 1 year ago by Herbieherb
Latest reply from Trevor

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Herbieherb

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Hi all I'm a little confused about which basis I should use when calculating gain or loss on gifted property. Ok I understand the rules if the Adj basis is greater than the fmv.
But what if the fmv is greater than basis.

Example
Adj basis 8000
Fmv 10000

What's the basis in calc gain or loss if sold for
12000?
7000?
9000?

Thanks for help.

AUD 8/1/10 - 78 , REG 11/7/10 - 88
BEC 11/30/10 - 81, FAR 2/28/11 - 79
CPA 06/01/11 NEW YORK- DONE
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Posted 1 year ago #
Trevor

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I am assuming you mean the adj basis is the donors basis. If this is the case it goes like this...

If the selling price is greater than the donors basis, use the donors basis to calculate gain.

If the selling price is less than the FMV then use the lesser of the FMV or donors basis to calculate a loss.

If the selling price falls between the FMV and the donors basis, no gain/loss will be recognized.

Thus if SP is 12,000, gain = $4,000 (12,000-8,000)
SP is 7,000, loss is 1,000 (7,000 - 8,000 (because 8,000<10,000))
SP is 9,000, no gain or loss

Change this around now... assume the basis is 10,000 and the fmv is 8,000:
SP is 12,000, gain is 2,000 (12,000-10,000)
SP is 7,000, loss is 1,000 (7,000-8,000)
SP is 9,000, still no gain or loss

BEC: 73,81(7/6/2010); AUD: 75(5/24/2010); FAR: 76(8/31/2010); REG: 77 (10/18/2010) - DONE!!!!

Posted 1 year ago #
Trevor

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Try to set it up like this:

SP? gain in amount over Donors basis

Donors Basis

SP?no gain or loss, it's not sure, its in the middle...

FMV

SP? loss in amount less than the lesser of FMV or Donor's basis

BEC: 73,81(7/6/2010); AUD: 75(5/24/2010); FAR: 76(8/31/2010); REG: 77 (10/18/2010) - DONE!!!!

Posted 1 year ago #
Herbieherb

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Thanks guys I got it now... I looked on Irs website before posting and got more confused LOL.

AUD 8/1/10 - 78 , REG 11/7/10 - 88
BEC 11/30/10 - 81, FAR 2/28/11 - 79
CPA 06/01/11 NEW YORK- DONE

Posted 1 year ago #
kaik

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I was under the impression that the above rules posted by Trevor ONLY applied when the FMV of the gift was below the adjusted basis of the donor at the time of gift.

In other words, if the gift's FMV was above the donor's adjusted basis, then you would ALWAYS use the donor's adjusted basis for calculating gains/losses, as this is a non-taxable event.

The exception that Trevor points out only applies when the FMV is below the adjusted basis at the time the gift is made. Then the donee bases his basis on the selling price.

Is this correct? I'm posting here for clarification in case anyone else reads this forum post, as I did. I have the REG test in a few weeks, and I want to make sure I understand this.

Cheers

FAR 11/1/10 - 94
REG 11/29/11 - 99
BEC 1/4/11 - 80
AUD 4/15/11 - 92

Posted 1 year ago #
koolerz

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@kaik:
I agree with you

FAR - 95, BEC - 86, AUD - 97, REG - 99

Posted 1 year ago #
Trevor

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I might be confused here, but from what I read that you are saying is...

if FMV > Donors basis you use the Donors basis in all calculations? That is true... think about it... if the SP is greater than donors basis you use donors basis... if the SP is less than the FMV you use the lesser of the FMV and donors basis, which if FMV is > donors basis would be the donors basis.... so in fact if your FMV>Donors basis yes you would always use the donors basis... right?

Did I understand what you are trying to say? again I could be wrong but that is how I understood it...

BEC: 73,81(7/6/2010); AUD: 75(5/24/2010); FAR: 76(8/31/2010); REG: 77 (10/18/2010) - DONE!!!!

Posted 1 year ago #
kaik

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That is correct. We are saying basically the same thing in different ways. I was just clarifying your first post in the sense that SP only determined basis in times when FMV is below donor's basis at the time of gift.

FAR 11/1/10 - 94
REG 11/29/11 - 99
BEC 1/4/11 - 80
AUD 4/15/11 - 92

Posted 1 year ago #
Trevor

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ok, very good. Thanks :)

BEC: 73,81(7/6/2010); AUD: 75(5/24/2010); FAR: 76(8/31/2010); REG: 77 (10/18/2010) - DONE!!!!

Posted 1 year ago #
kaik

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Trevor,

I reread your original post; there was something I didn't agree with (the first time I went through), but yesterday I was busy at work and couldn't devote time to figure it out. Today I did (it's probably just a clarification for you).

Your example:

Example
Adj basis 8000
Fmv 10000

If SP is 12,000, gain = $4,000 (12,000-8,000)
SP is 7,000, loss is 1,000 (7,000 - 8,000 (because 8,000<10,000))
SP is 9,000, no gain or loss

In this scenario, the part I disagree with is if the SP is 9,000. In this scenario, at time of gift, the FMV>Adj. Basis. As such, you would use the adjusted basis in ALL calculations of gain or loss. Therefore, with a selling price of $9,000, you would recognize a gain of $1,000 (9,000-8,000). That is my point about the rule if: FMV>Adj. Basis at time of gift, use Adj. Basis.

I agree with your second example where the FMV is 8,000 and the Adj. Basis is 10,000.

You understand what I am saying?

FAR 11/1/10 - 94
REG 11/29/11 - 99
BEC 1/4/11 - 80
AUD 4/15/11 - 92

Posted 1 year ago #
Trevor

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I get what you are saying... because the adjusted basis is less than the FMV you use the adjusted basis.

It makes sense also. Thinking about it again you are right, if the SP > Adj. basis then no matter what there is a gain. Only when the adj. basis is > FMV and the SP is between them will there be no loss or gain.

I understand what you were saying better now, thanks for the clarification.

BEC: 73,81(7/6/2010); AUD: 75(5/24/2010); FAR: 76(8/31/2010); REG: 77 (10/18/2010) - DONE!!!!

Posted 1 year ago #
kaik

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No problem. I see you are waiting on your score.

Best of luck.

FAR 11/1/10 - 94
REG 11/29/11 - 99
BEC 1/4/11 - 80
AUD 4/15/11 - 92

Posted 1 year ago #
Trevor

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Yea I don't think I did well. The last two I was able to sqeek by, but this time I do not think I did quite enough... Here's to hoping though! Thanks

BEC: 73,81(7/6/2010); AUD: 75(5/24/2010); FAR: 76(8/31/2010); REG: 77 (10/18/2010) - DONE!!!!

Posted 1 year ago #

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Question about basis of gifts gain/loss

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