Homework Answers
To figure out the basis of property received as gift, following three amounts must be known:
Adjusted cost basis to Joan = $900,000
Fair market value at the time of gift = $1,400,000
Amount of gift tax paid = $50,000
If the FMV is greater than adjusted cost basis to donor, then recipient's basis in residence will be the donor's adjusted cost basis at the time of gift. If a gift is received after 1976, basis should be increased by the tax paid on gift that is due to the net increase in the value of gift.
In the question, FMV of residence i.e. $1,400,000 is greater than the adjusted cost basis to Joan of $900,000. Also, the gift is received in 2019, after 1976.
Hence, Rob's basis = $900,000 + $50,000 = $950,000
Rob's basis in the residence is $950,000
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Answers are not $900,000 and $15,000 respectively.
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