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Posted by Seth Breidbart on January 3, 2007, 10:49 pm
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>>>> Consider a $300,000 house (parent's basis $200,000) sold as
>>>> a gift to the child for $150,000. The child wouldn't get a
>>>> basis of $350,000.
> I misspoke. The child's basis is the amount paid plus the
> parent's basis in the part gifted. Using your numbers, the
> child's basis would be $150,000 (for the half interest
> purchased) + $100,000 (the donor's basis in the half
> interest gifted) = $250,000.
>
> The parent would have a $50,000 gain to report on the sale
> and a $150,000 gift return item to report.
The parents bought a house for $200,000 and sold it for
$150,000 and have a *gain*? How does that work?
Seth
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Posted by Herb Smith on January 2, 2007, 4:07 am
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>>> Consider a $300,000 house (parent's basis $200,000) sold as
>>> a gift to the child for $150,000. The child wouldn't get a
>>> basis of $350,000.
>> The child's basis is the amount paid + the amount of the
>> gift. Using your $300,000 house as an example, the child's
>> basis would be $150,000 (cash paid) + $150,000 (the amount
>> of the gift).
> If true, that would be a great way to avoid some amount of
> Capital Gains tax. You buy stock for $1,000, it goes up to
> $10,000, and you sell/gift it for $100. The amount of the
> gift is $9,900, so if the recipient's basis is as you claim,
> they can sell it for $10,000 and there's no capital gains
> tax. Meanwhile, you don't have any capital gains tax to
> pay, taking a non-deductible $900 loss; nor is the gift
> large enough to trigger a gift tax.
>
> Therefore, it can't be the case.
>
> The basis of the recipient is the _larger_ of the basis of
> the donor or the amount paid, not their sum. That way, the
> full increase is subject to Capital Gain Tax (perhaps partly
> by each of the parties, as it would be if the stock were
> sold/gifted for $5,000).
Carefully reading both responses above (Bill and Seth), I
have to disagree with both of them. Using the same $300,000
home, the recipient pays $150,000 and gets a gift of the
other $150,000 value. The donors cost basis in the "gifted"
half is $100,000. Add that to the "purchased" half and you
get an adjusted cost basis of $250,000. If this house were
then sold for FMV ($300,000), there would be a capital gain
of $50,000. The donor, of course, would be subject to Gift
Tax reporting on the $150,000 gift.
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<< The foregoing was not intended or written to be used, >>
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Posted by Herb Smith on January 4, 2007, 8:35 pm
Please log in for more thread options >>>>> Consider a $300,000 house (parent's basis $200,000) sold as
>>>>> a gift to the child for $150,000. The child wouldn't get a
>>>>> basis of $350,000.
>> I misspoke. The child's basis is the amount paid plus the
>> parent's basis in the part gifted. Using your numbers, the
>> child's basis would be $150,000 (for the half interest
>> purchased) + $100,000 (the donor's basis in the half
>> interest gifted) = $250,000.
>>
>> The parent would have a $50,000 gain to report on the sale
>> and a $150,000 gift return item to report.
> The parents bought a house for $200,000 and sold it for
> $150,000 and have a *gain*? How does that work?
It doesn't. The parents have a NONDEDUCTIBLE $50,000 LOSS on
the sale, and file a Gift Tax return on the $150.000
(-$24,000) gift. The child, if the house is sold immediately
for FMV, would have a $50,000 GAIN on the sale.
($300,000 sale - $250,000 basis) = $50,000 gain.
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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Posted by Seth Breidbart on January 5, 2007, 8:06 am
Please log in for more thread options >>>>>> Consider a $300,000 house (parent's basis $200,000) sold as
>>>>>> a gift to the child for $150,000. The child wouldn't get a
>>>>>> basis of $350,000.
>>> I misspoke. The child's basis is the amount paid plus the
>>> parent's basis in the part gifted. Using your numbers, the
>>> child's basis would be $150,000 (for the half interest
>>> purchased) + $100,000 (the donor's basis in the half
>>> interest gifted) = $250,000.
>>>
>>> The parent would have a $50,000 gain to report on the sale
>>> and a $150,000 gift return item to report.
>> The parents bought a house for $200,000 and sold it for
>> $150,000 and have a *gain*? How does that work?
> It doesn't. The parents have a NONDEDUCTIBLE $50,000 LOSS on
> the sale, and file a Gift Tax return on the $150.000
> (-$24,000) gift. The child, if the house is sold immediately
> for FMV, would have a $50,000 GAIN on the sale.
>
> ($300,000 sale - $250,000 basis) = $50,000 gain.
But if the parents sold it for FMV, there would be a taxable
gain of $100,000. The Capital Gains Tax on the other
$50,000 seems to have disappeared. That doesn't seem
likely. (Assume it's not a their residence, so the
exclusion doesn't apply; or use a stock holding instead.)
Seth
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
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Posted by cballard@tyyni.net on January 4, 2007, 8:54 pm
Please log in for more thread options >>>>> Consider a $300,000 house (parent's basis $200,000) sold as
>>>>> a gift to the child for $150,000. The child wouldn't get a
>>>>> basis of $350,000.
>> I misspoke. The child's basis is the amount paid plus the
>> parent's basis in the part gifted. Using your numbers, the
>> child's basis would be $150,000 (for the half interest
>> purchased) + $100,000 (the donor's basis in the half
>> interest gifted) = $250,000.
>>
>> The parent would have a $50,000 gain to report on the sale
>> and a $150,000 gift return item to report.
> The parents bought a house for $200,000 and sold it for
> $150,000 and have a *gain*? How does that work?
Seth has been correct in this entire discussion. When in
doubt, check the regulations -- in this case Reg 1.1015-4.
In the case of a part gift, part sale, the regulation says
that, for the purposes of determining gain, the transferee's
basis is the larger of: (i) the amount paid by the
transferee, or (ii) the transferor's basis. For the
purposes of determining loss, the transferee's basis is the
smaller of: (i) the basis used for determining gain, or (ii)
the fair market value of the property at the time of the
transfer.
Reg 1.1001-1(e) addresses things from the transferor's
perspective. The transferor in a part gift, part sale
transaction must recognize gain to the extent that the
amount paid to the transferor exceeds the tranferor's basis.
The transferor is not allowed to recognize a loss in a part
gift, part sale transaction.
--Chris
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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