In 2010,Harold purchased a classic car that he planned to restore for $12,000.However,Harold is too busy to work on the car and he gives it to his daughter Julia in 2014.At this time,the fair market value of the car has declined to $10,000.Harold paid no gift tax on the transaction.Julia completes some of the restoration herself with outofpocket costs of $5,000.She later sells the car for $30,000.What is Julia's recognized gain or loss on the sale of the car?
A)$0
B)$13,000
C)$15,000
D)$18,000
E)None of these

Question

In 2010,Harold purchased a classic car that he planned to restore for $12,000.However,Harold is too busy to work on the car and he gives it to his daughter Julia in 2014.At this time,the fair market value of the car has declined to $10,000.Harold paid no gift tax on the transaction.Julia completes some of the restoration herself with out­of­pocket costs of $5,000.She later sells the car for $30,000.What is Julia's recognized gain or loss on the sale of the car?
A)$0
B)$13,000
C)$15,000
D)$18,000
E)None of these

Quizplus · Accepted Answer

Julia's basis in the car is $10,000 (the fair market value when she received it from her father). She spent $5,000 on restoration, so her total basis is $15,000. She sold the car for $30,000, so her recognized gain is $15,000.

In 2010,Harold Purchased a Classic Car That He Planned to Restore