Easy gift basis question

Technical topics regarding tax preparation.
#1
Wiles  
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I am sure this is an easy question... What is the daughter's basis in this property?

Parents have a basis of $40K in the property. They sell the property to their daughter for $100K. After the daughter pays $20K of principal, the parents forgive the remaining $80K.
 

#2
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$100K, right. Her purchase price. Parent have $60,000 gain, then a gift of $80,000, requiring a gift tax return.
 

#3
sjrcpa  
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Was the 100K sale done at FMV?
 

#4
Wiles  
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Hmm.. That makes a difference? Interesting.

Let's use $200K as the FMV
 

#5
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Gift is now $180k

Wouldn’t the installment sale rules make the gain be calculated based on the proceeds actually received? Assuming the property is business property ....
 

#6
Wiles  
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Let's say this all occurs over 2 years:
* Year 1 - Gift of $100K. Installment sale of $100K. $20K received.
* Year 2 - Gift of $80K remaining on installment sale

So in year #1, parents report a sale for $100K with a basis of $40K. $60K gain (60% gain).
Their Form 6252 shows $20K received with a $12K recognized gain. $80K not received and $48K deferred gain.

Is the daughter's basis the $20K she paid + $32K basis remaining on the $80K that was gifted = $52K?
 

#7
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I am sure this is an easy question


Why so easy? Someone might say that 108(e)(5) applies. Then someone else might say that (e)(5) isn’t appropriate, for one reason or another…
 

#8
lckent  
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I think the remaining gain on the installment note would be recognized under Sec 453B and basis would be purchase price, $100k.
CPA, Retired
 

#9
Dennis2  
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[quoteLet's use $200K as the FMV][/quote]

Gift is now $180k


Total gift...two returns.

Note difference between basis for gain and basis for loss
 

#10
Wiles  
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Dennis2, ... and what are those basises?
 

#11
Dennis2  
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§1015
 

#12
Wiles  
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Got it! $52K.
 

#13
Wiles  
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Correction. Basis range is $20k and $40k

Parents amend year 1 tax return (see post #6) and remove $12k gain because the sale is recast @ $20k
Last edited by Wiles on 18-Jan-2021 4:30pm, edited 1 time in total.
 

#14
Wiles  
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Been thinking about this...

Is there really a basis range here? $20K for loss and $40K for gain?

If the value of the gift is above $40K, then the loss basis is also $40K.
 

#15
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Wiles wrote:I am sure this is an easy question...
How many times have you scoffed when a client calls and opens with, "I'm sure this is an easy question"?
Dave

Taxation is the price we pay for failing to build a civilized society. ~ Mark Skousen
 

#16
Wiles  
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Yep. So true. It's code for "certainly, I value your advice but please don't charge me for this..."
 


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