Final answer:
Kimberly should recognize no gain or loss because the sale price of $45,000 is more than the fair market value at the time of the gift but less than the donor's adjusted basis. Her basis for determining a gain is the donor's adjusted basis, but for a loss, it would be the fair market value at the time of the gift. Since the sale price doesn't exceed the donor's basis nor fall below the fair market value, no gain or loss is recognized.
Step-by-step explanation:
When determining a recognized gain or loss on the sale of gifted property, different tax basis rules apply depending on whether the sale price is more than the donor's basis or less than the fair market value on the date of the gift. In Kimberly's case, the donor's adjusted basis was $50,000, and the fair market value at the time of the gift was $40,000. Since the property sold for $45,000, which is more than the fair market value at the time of the gift but less than the donor's basis, the basis for determining loss is the fair market value on the date of the gift ($40,000). However, the basis for determining gain is the donor's adjusted basis ($50,000).
After selling the property for $45,000, which is in between these two figures, there is neither a gain nor a loss recognized. Kimberly essentially sold the property for more than the lower limit (fair market value) but less than the upper limit (donor's adjusted basis).
The recognized gain or loss in Kimberly's case is C) No recognized gain or loss. The sale price falls between the donor's adjusted basis and the fair market value at the time of the gift, thus resulting in no gain or loss recognized.