Question

Sheila sells land to Elane, her sister, for the fair market value of $40,000. Six months later when the land is worth $45,000, Elane gives it to Jacob, her son. (No gift tax resulted.) Shortly thereafter, Jacob sells the land for $48,000. Assuming that Sheila’s adjusted basis for the land is $24,000, what are Sheila’s and Jacob’s recognized gain or loss on the sales

Answer 1

Sheila Recognized gain is
`\$16000`

Jacob Recognized gain is
`\$8000`

Solution:

Sheila’s Sale:

Amount noticed
`\$40,000`

Fixed basis
`(24,000)`

-------------

Gain
`\$16,000`

Recognized Gain =
`\$16,000`

Jacob’s Sale:

Amount noticed
`\$48,000`

Fixed basis
`(40,000)`

-------------

Gain
`\$8,000`

Recognized Gain = $8000

The $40,000 profit base of Jacob is same as the adjusted basis of Elane.