Question

Joycelyn gave a diamond necklace to her granddaughter Emma. Joycelyn had purchased the necklace in 1980 for $20,000. The FMV of the necklace at the time of the gift was $50,000. After deducting the annual exclusion, the amount of the gift was $35,000. Gift taxes of $10,000 were paid. What is Emma's adjusted basis in the necklace?

Answer 1

$28,571 is Emma's adjusted basis in the necklace.

Explanation:

Emma's basis will be summation of her grandmother's basis in the property and the share of the gift tax attributable to the appreciation corresponding to the gifted date.

$20,000 + [$10,000 × ($50,000-20,000) / $35,000]

$20,000 + [($10,000 × $30,000) / $35,000]

$20,000 + [($10,000 × $30,000) / $35,000]

$20,000 + [$3000,000,000 / $35,000]

$20,000+$8571

$28,571.