Rob was given a residence in 2010.At the time of the gift,the residence had a fair market value of $200,000,and its adjusted basis to the donor was $140,000.The donor paid a gift tax of $10,000 on the taxable gift of $188,000.What is Rob's basis for gain?
A)$140,000.
B)$143,209.
C)$150,000.
D)$200,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Rob's basis for gain is calculated as follows:

Step 1: Determine the donor's adjusted basis (i.e., the donor's cost for tax purposes) at the time of the gift.

The donor's adjusted basis is $140,000.

Step 2: Determine the donor's realized gain on the gift.

The donor realized a gain of $60,000 ($200,000 fair market value - $140,000 adjusted basis).

Step 3: Determine the donor's recognized gain on the gift.

The gift tax paid by the donor does not affect Rob's basis for gain. Therefore, the donor's recognized gain on the gift is $60,000.

Step 4: Determine Rob's basis for gain.

Rob's basis for gain is equal to the donor's adjusted basis plus the amount of recognized gain, or:

$140,000 + ($60,000 - $10,000 gift tax) = $143,000

Therefore, the best answer is B: $143,209.

Rob Was Given a Residence in 2010