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Basis for land; recognized gain or loss in gift transaction

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Mel gives a parcel of land to his son, Scott. He had purchased the land in 1996 for $140,000 and its fair market value on the date of the gift is $125,000. No gift tax is paid. Scott subsequently sells the land for $131,000.

a. What is Scott's basis for the land?

b. What is Scott's realized and recognized gain or loss from the sale of the land?

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Solution Summary

The solution explains the rules relating to the gift basis of land transferred from Mel to Scott, and then provides examples to ease of understanding.

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This is a very interesting question and probably does not have the answer one might expect.

First some rules:

1. A recipient takes the basis of the donor.
2. The gift tax is a donor issue only although none in this case.
3. There is no reportable gain transaction for the donor at the time of the transfer.
4. If the fair market value of the property at the date of gift is lower than the basis of the donor, then the property's ...

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