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?

Question

Quizplus · Accepted Answer

To find Emma's adjusted basis in the necklace, we need to start with the original purchase price of the necklace, which was $20,000. However, since the gift tax was paid by the donor (Joycelyn), we need to add that amount back to the purchase price to arrive at the adjusted basis.

Adjusted Basis = Purchase Price + Gift Tax paid
Adjusted Basis = $20,000 + $10,000
Adjusted Basis = $30,000

Therefore, the correct answer is (B) $28,571.

Joycelyn Gave a Diamond Necklace to Her Granddaughter Emma