Question

Sheila sells land to Elane, her sister, for the fair market value of $40,000. Six months later when the land is worth $45,000, Elane gives it to Jacob, her son. (No gift tax resulted.) Shortly thereafter, Jacob sells the land for $48,000. Assuming that Sheila’s adjusted basis for the land is $24,000, what are Sheila’s and Jacob’s recognized gain or loss on the sales

Answer 1

Sheila Recognized gain is $\ 16000$

Jacob Recognized gain is $\ 8000$

Solution:

Sheila’s Sale:

Amount noticed              $\ 40,000$

Fixed basis                      $(24,000)$

                                       -------------

Gain                                 $\ 16,000$

Recognized Gain = $\ 16,000$

Jacob’s Sale:

Amount noticed              $\ 48,000$

Fixed basis                      $(40,000)$

                                       -------------

Gain                                $\ 8,000$                            

Recognized Gain = $8000

The $40,000 profit base of Jacob is same as the adjusted basis of Elane.