Question

Jane transferred a piece of real estate to her son Christopher 6 months ago. Jane purchased the real estate for $90,000 six years ago and the property was valued at $65,000 on the date of transfer. Jane paid $20,000 in gift tax on the transfer. All of the following statements are true, except:a. If Christopher were to sell the property for $60,000 today, then the loss is a short term capital loss.
b. Christopher’s basis will be adjusted for a portion of the gift tax paid.
c. Christopher will have a dual basis for income tax purposes.
d. If Christopher sold the property for $120,000 after holding it for 5 years, his gain would be $30,000.

Answer 1

Answer:

c. Christopher will have a dual basis for income tax purposes.

Explanation:

Due to the fact that the basis of Jane in the specific property was higher than the FMV of the property on the specific date that she gave out the property, therefore, the double basis principle will apply to Christopher. In addition, Christoper will not collect any additional basis for the tax paid on the gift. The correct answer is option c.