Question

Determine the amount of income that must be recognized by the taxpayer(s) in the current year for each of the following situations. Explain how you determined the amount that was taxable.

d. Angie was shopping at a "flea market" when she saw a painting with a frame that appeared to be quite old. Although the painting was uninteresting, she paid the $35 asking price just to get the frame. When she returned home, she took the old painting out of the frame, intending to throw it away. However, she noticed what appeared to be another painting behind the one she bought. Curious, she took the painting to a friend who is a local art expert. The friend thought the second painting was a lost "Monet" and could be worth millions. Angie sends the painting to a museum in Boston, which confirms that the painting is indeed a lost "Monet." Similar paintings have been selling for $650,000 to $800,000, although the art market is in a down cycle. Angie decides to wait until the art market picks up a bit to sell the painting.

Answer 1

As per the given information the assessee has not sold the painting which she had acquired from the market. She has only got the valuation of painting in the market as on date and would like to sell the painting at later stage when the market improves. Therefore in the current year there will be no addition in income of assessee and the taxable income will be Nil. The event of taxation is the time when transactions takes place i.e. when there is Transfer.