Question

Teresa purchased a necklace for $100 in 1964. In 2014, Teresa gave the necklace to her granddaughter, Lindsey.

At the time of the gift, the necklace had an appraised value of $850. In 2016, Lindsey sold the necklace for $1,200.

What is the amount and character of Lindsey's gain from this sale?

a)$350 ordinary gain.

b)$350 long-term capital gain.

c)$1,100 ordinary gain.

d)$1,100 long-term capital gain

Answer 1

d)$1,100 long-term capital gain

Step-by-step explanation:

Given the information from the question. We know that a long-term capital gain or loss comes from investment that was possessed for a year or longer. However in this case, since the necklace was a gift .Therefore, there were no capital gain in 2014. In 2016, Lindsey sold the necklace for $1200. Therefore, the capital gain on the necklace will calculated as $1200- $100 = $1100. Where the $100 is a cost purchase for the previous owner. Therefore, long-term capital gain is $1100 which is option D.