During the current year,Don's aunt Natalie gave him a house.At the time of the gift,the house had a FMV of $145,000 and his aunt's adjusted basis was $134,000.After deducting the annual exclusion,the amount of the gift was $130,000.His aunt paid a gift tax of $20,000 on the house.What is Don's basis in the house for purposes of determining gain?

Question

Quizplus · Accepted Answer

Don's basis in the house for determining gain is the sum of his aunt's adjusted basis ($134,000) and the amount of gift tax paid on the gift ($20,000), which is equal to $154,000. However, this amount must be adjusted for the gift tax paid as a percentage of the amount of the gift (not the FMV), which is equal to ($20,000/$130,000) x $145,000 = $22,308. Therefore, Don's adjusted basis in the house is $134,000 + $22,308 = $135,692.

During the Current Year,Don's Aunt Natalie Gave Him a House