Geraldine inherited a piece of land when her father Albert died on July 26,2016 The FMV of the land at the date of death was $40,000 and cost Albert $20,000 in 2010.Geraldine sold the land on March 29,2017 for $45,000.What are the amount and nature of the gain on the sale?
A)$5,000 ordinary gain.
B)$5,000 capital gain.
C)$25,000 ordinary gain.
D)$25,000 capital gain.

Question

Quizplus · Accepted Answer

When Geraldine inherited the land, the FMV at the date of death is used as the cost basis. Therefore, her cost basis is $40,000.

When she sold the land, the selling price was $45,000.

The capital gain is calculated as follows:

Selling price - Cost basis = Capital Gain
$45,000 - $40,000 = $5,000

Since the land was held for more than one year before it was sold, the gain is a long-term capital gain.

Geraldine Inherited a Piece of Land When Her Father Albert