Final answer:
Louis' basis in the car gifted by Emma is $32,000 and his holding period begins on July 1, 2015, which is when Emma originally purchased the car.
Step-by-step explanation:
When Emma gifts her car with a cost of $32,000 and a fair market value of $12,000 to her son, Louis, the rules for gift tax basis come into play. In such cases, Louis' basis in the gifted car is generally the same as Emma's original cost basis, which is $32,000, rather than the fair market value at the time of the gift.
According to the gift tax basis rules, Louis inherits Emma's original cost basis, ensuring consistency in the tax treatment of the gifted asset. This means that the initial cost Emma incurred to acquire the car becomes the starting point for Louis' basis in the car.
Importantly, Louis' holding period for the car includes the time it was owned by Emma. In this scenario, the holding period begins on July 1, 2015, which is when Emma originally acquired the car. Louis essentially steps into Emma's shoes regarding the ownership timeline.
Therefore, Louis' basis for the car is established at $32,000, maintaining continuity with Emma's original cost basis. Additionally, his holding period starts from the date of Emma's acquisition, July 1, 2015. This information is critical for future tax considerations, especially if Louis decides to sell the car, as his basis and holding period will influence the determination of capital gains or losses upon a subsequent sale.