Question

Land fair market value $25,000, the adjusted basis is $5,000. A donor can achieve several tax advantages by making gifts of appreciated property. The donor avoids income tax on the unrealized gain that would have occurred had the property been sold. And if the donee is in a lower tax bracket than the donor, there will be tax savings if the property is sold. Both the cash and the land that has equal FMV to adjusted basis, has no tax advantage of gifting. The land in the loss position (AB greater than the FMV) should be sold to realize the loss and then gift the cash

Brandon, is considering gifting to Dena, his daughter. Regarding Brandon's income tax position, which of the following items would be the best to gift? (Assume no gift tax)
a. Land fair market value $25,000, the adjusted basis is $5,000.
b. Cash of $25,000
. c. Land fair market value $25,000, the adjusted basis is $25,000.
d. Land fair market value $25,000, the adjusted basis is $50,000.
e. None of these choices are correct.

Answer 1

The best item for Brandon to gift in terms of his income tax position would be land with a fair market value of $25,000 and an adjusted basis of $50,000.

Step-by-step explanation:

The best item to gift for Brandon, in terms of his income tax position, would be option d. Land fair market value $25,000, the adjusted basis is $50,000.

When gifting appreciated property, the donor can avoid income tax on the unrealized gain that would have occurred if the property was sold. In this case, gifting the land with a fair market value of $25,000 and an adjusted basis of $50,000 would allow Brandon to avoid paying taxes on the difference between the fair market value and the adjusted basis, which is a loss.

All other options either have an equal fair market value to adjusted basis ratio (which provides no tax advantage) or have a fair market value higher than the adjusted basis (which would result in a taxable gain for Brandon).