[AMERICANDREAM]

From Wiley Testbank:
Sheri received jewelry as a gift from her aunt, Amy. At the time of the gift, the jewelry had a fair market value of $54,000 and an adjusted basis of $19,000. This was the only gift that Sheri received from Amy during 2015. If Amy paid a gift tax of $8,000 on the transfer of the gift to Sheri, what tax basis will Sheri have for the jewelry?

A) $19,000
B) $25,000
C) $26,000 –> Correct
D) $27,000

I thought the answer was A. I used Becker for lecture materials but nowhere in the textbook mentions that if the gift appreciates in value, we need to take that into account…

The answer is: 8k*(35/40)

Is this something I need to be worried about? If yes, I kind of blame becker…

[AMERICANDREAM]

anyone?

[RE2PECT]

I always get tripped up on these questions, but it has to do with the gift tax being paid, which adds on to the donee's basis.

gift tax paid*(increase in FMV of gift / FMV of the gift minus the gift tax exclusion)

8000*[(54000-19000)/(54000-14000)]
8000*(35000/40000) = 7000

19000 + 7000= 26000

FAR: 75 Roger & Ninja (notes/flashcards/audio/MCQ)
AUD: 73, 81
BEC: 71, retake 8/29
REG:

[CageTheCPA]

Their explanation is garbage.

No, I don't recall seeing anything related to Gift Taxes on REG. But you never know… so, just don't let them (try to) trick you.

Whenever a gift appreciates you have to take the carryover basis (the giver's basis) plus any gift tax attributable to the appreciation (the $7K in @Re2pect calculation above).

Hope this helps!

[Author]

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