[Anonymous]

I was practicing on CPA Review For Free and encountered this question which I got wrong and I’m frustrated about it because I don’t know why I got it wrong….

Candy Valentine owns securities with a tax basis of $5,000. She gives them to Bill Wallace when they are worth $6,100. He holds them but they begin to fall in value. He finally sells them for $5,200. What is the impact on taxable income that he must report on this sale?

A Zero

B $900 loss

C $200 gain

D $1,100 gain

Correct Answer- C

When property that has been received as a gift is sold above the previous owner’s tax basis, the difference is the gain on the sale. Wallace sold the property for $5,200 which is $200 more than the basis to Valentine of $5,000. That $200 difference is the gain that Wallace must report.

Why is it not A? It is my understanding that when property is received as a gift and then sold at a price between FMV and Basis, there is no recognized gain or loss.

What is going on?? I have done a TON of questions on this with Gleim and never encountered such a problem. What quirk am I missing in this question?

[Anonymous]

Wait, let me guess. It’s 0 recognized gain/loss when the selling price is below basis, right? In this question, the Selling Price is above basis.

Yeah, I give up!!! This is ridiculous. I’m sorry, I tried feeling confident and all, but it’s getting to the point where this is literally impossible. Another 64 coming my way!! Ugh!!!

[wannacpaforever]

The answer is B as Fair-market value is Higher, Transaction rule apply if Fair-market value is lower.

[Anonymous]

Wait, it can't be. CPA Review For Free said it's C.

[wannacpaforever]

sorry i meant C not B

[Anonymous]

I have done over 1,000 questions on Gleim and never encountered this nitpicky little quirk. This is very frustrating. Maybe I shouldn't have wasted money on Gleim and just used CPA Review For Free instead. It seems to introduce a lot of quirks that I've never encountered before. And I'm sure that's a good thing since I expect the actual exam to be the same way.

[wannacpaforever]

Sorry if i confused you.

For Gift

If FMV is High than cost is used than there is no SP Rule

But IF FMV is LOW

Than

ther is 3 rule

1)Is sp is greater than FMV and above cost than Cost

2) Is SP is lower than FMV than FMV that will be loss

3) If SP is between Cost and FMV than SP and there will be no gain or loss

I hope this help.

[Yvonne570]

When you receive a gift, you have to use the donor's basis when the FMV is greater than the donor's basis. This case, this was $5000 less the sales price $5200 – $200 gain.

https://www.irs.gov/publications/p551/ar02.html#en_US_2010_publink1000257001

AUD - Passed:)
FAR - Passed:)
REG - Retake TBD
BEC - Missed by 3 points Retake TBD

[See Pee A]

The basis the person uses depends on their eventual sales price and if FMV was < or > cost at the gift date.

If FMV > cost… cost is the basis

If FMV < cost… sale price > cost… cost is the basis

… cost > sale price > FMV … cost is the sale price… so 0 gain/loss

… sale price < FMV… FMV is the basis

The idea is that it gives you both a lower recognized gain or loss no matter what you sell it at since the basis depends… hope this helps.

BEC 86 (08/30/11)
FAR 84 (10/13/11)
REG 88 (11/08/11)
AUD 86 (11/29/11)

Exam prep - Becker self-study

[Anonymous]

You know, after a good night sleep, I just realized how stupid I was…

When Selling Price is above FMV & Basis, the donor's basis becomes donee's basis.

When Selling Price is below FMV & Basis, the donee's basis is the lower of the FMV or donor's basis.

So, if you think about it, if the Basis is lower than FMV, then the donor's basis will become the donee's basis no matter what. So, in my question above, the basis is lower than FMV. So, yeah, the donor's basis becomes the donee's basis. So Selling Price – Basis = Gain. DUH!!! *smacks self*

[Anonymous]

This is the grandma's car rule. Since it was worth more then the basis at the time of the gift the recipient uses her basis and reports a gain of $200 when sold

[Author]

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