Question

Juliana purchased land three years ago for $76,600. She gave the land to Tom, her brother, in the current year, when the fair market value was $107,240. No gift tax is paid on the transfer. Tom subsequently sells the property for $96,516.

Answer 1

The question pertains to calculating the implications of a real estate transaction for tax purposes and understanding equity in property ownership.

It highlights calculating equity based on current market value and outstanding loans, and considerations for capital gains or losses after receiving a property as a gift.

Step-by-step explanation:

The subject question involves an understanding of property transactions, basis for tax purposes, and the concept of equity in the context of real estate.

When Juliana gifted land to Tom, its fair market value was $107,240, but Tom sold it for $96,516. The relevant information for determining any potential capital gains or losses includes the original purchase price or basis, the sale price, and whether gift tax was paid.

Similarly, with Freda’s and Frank's houses, assessing their real estate equity requires knowing the purchase price, current market value, and any outstanding loan amounts.

Freda's house has a current value of $250,000, and since she paid in cash, her equity is the full value. On the other hand, Frank's house, valued at $160,000, has an outstanding loan balance of $60,000, which means his equity is $100,000.

These principles are common in financial coursework and are an important part of understanding personal finance and real estate investing.