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© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1
Federal Income
Tax
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 2
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 3
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 4
Introduction to Capital Gainsand Losses
So YouSold SomeProperty … ...
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 5
What must we knowabout the asset?
I. Type of asset soldA. Personal
B. Business
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 6
What must we knowabout the asset?
I. Type of asset soldA. Personal -- “capital”
B. Business
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 7
Capital AssetsSection 2619
Capital assets include all assets held by the taxpayer except:1. Stock in trade of the taxpayer or other property of a kind that would properly be
included in the inventory of the taxpayer if on hand at the close of the tax year.2. Property held by the taxpayer primarily for sale to customers in the ordinary course
of his trade or business.3. Accounts or notes receivable acquired in the ordinary course of a trade or
business for services rendered or from the sale of any properties described in 1. and 2. above.
4. Depreciable property used in the taxpayer's trade or business.5. Real property used in the taxpayer's trade or business.6. Certain copyrights, and literary, musical or artistic compositions7. Letters, memoranda or similar property in the hands of the writer, donees of the
writer and persons to whom they were sent or for whom they were produced.8. U.S. government publications (Congressional Record) received from the
government without charge or below the price sold to the public, in the hands of the recipient and carryover_basis transferees (Code Sec. 1221)
EXCEPT
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 8
What must we knowabout the asset?
I. Type of asset soldA. Personal -- “capital”
1. Gains and Losses2. Gains and Losses
B. Business
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 9
What must we knowabout the asset?
I. Type of asset soldA. Personal -- “capital”
1. Gains and Losses2. Gains and Losses
B. Business
Consider anExample
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 10
What must we knowabout the asset?
I. Type of asset soldA. Personal -- “capital”
1. Gains and Losses2. Gains and Losses
B. Business
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 11
What must we knowabout the asset?
I. Type of asset soldA. Personal -- “capital”
1. Gains and Losses2. Gains and Losses
B. Business
ConsiderAnotherExample
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 12
What must we knowabout the asset?
I. Type of asset soldA. Personal -- “capital”
1. Gains and Losses2. Gains and Losses
B. BusinessGains but NOT Losses
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 13
What must we knowabout the asset?
I. Type of asset soldA. Personal -- “capital”
1. Gains and Losses2. Gains and Losses
B. Business
Here’s Another
One
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 14
What must we knowabout the asset?
I. Type of asset soldA. Personal -- “capital”
1. Gains and Losses2. Gains and Losses
B. Business
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 15
What must we knowabout the asset?
I. Type of asset soldA. Personal -- “capital”
1. Gains and losses2. Gains and losses
B. Business1.2.3.
Will Complete Laternot
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 16
II. Other Information Needed?
B A
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 17
Other Information Needed?
B AA. Sales Price (and date)II.
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 18
Other Information Needed?
B AA. Sales Price (and date)B. – Basis (Cost) (and date)
II.
Today’sLesson
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 19
Other Information Needed?
B AA. Sales Price (and date)B. – Basis (Cost) (and date)C. = Gain or (Loss)
II.
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 20
Other Information Needed?
B AA. Sales Price (and date)B. – Basis (Cost) (and date)C. = Gain or (Loss)
II.
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 21
II. Other Information Needed?
B A
III.III. Holding Period
A. Short-termB. Long-term
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 22
Which would you prefer?
GainST
LT
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 23
Which would you prefer?
LossST
LT
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 24
Special Treatment of Long-Term Gains
1954 1986
LTCGD ***
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 25
Special Treatmentof Long-Term Gains
1954 1986 1997
LTCGD alternate tax rate*
*
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 26
Special Treatmentof Long-Term Gains
1954 1986 1997
LTCGD alternate tax rate
reduced rates**
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 27
Special Treatment
’54 – ’69ST 100%
<ST> <100%>($1,000 annual maximum)
LT
<LT>
*
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 28
Special Treatment
’54 – ’69ST 100%
<ST> <100%>($1,000 annual maximum)
LT 50 / 50LTCGD / taxed
<LT> <100%>($1,000 annual maximum)
**
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 29
Special Treatment
<100%>($1,000 annual maximum)
<LT>
50 / 50LTCGD / taxed
LT
<100%>($1,000 annual maximum)
<ST>
100%ST’54 – ’69
*
$1,000
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 30
Special Treatment
’54 – ’69 ’69 – ’86ST 100% 100%
<ST> <100%>($1,000 annual maximum)
<100%>($3,000 annual maximum)
LT 50 / 50LTCGD / taxed
<LT> <100%>($1,000 annual maximum)
*
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 31
Special Treatment
’54 – ’69 ’69 – ’86ST 100% 100%
<ST> <100%>($1,000 annual maximum)
<100%>($3,000 annual maximum)
LT 50 / 50LTCGD / taxed
60 / 40LTCGD / taxed
<LT> <100%>($1,000 annual maximum)
<50%>($3,000 annual maximum)
**
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 32
Special Treatment
’54 – ’69 ’69 – ’86 After ’86ST 100% 100%
<ST> <100%>($1,000 annual maximum)
<100%>($3,000 annual maximum)
LT 50 / 50LTCGD / taxed
60 / 40LTCGD / taxed
<LT> <100%>($1,000 annual maximum)
<50%>($3,000 annual maximum)
*
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 33
Special Treatment
’54 – ’69 ’69 – ’86 After ’86ST 100% 100% 100%
<ST> <100%>($1,000 annual maximum)
<100%>($3,000 annual maximum)
<100%>($3,000 annual maximum)
LT 50 / 50LTCGD / taxed
60 / 40LTCGD / taxed
100%
<LT> <100%>($1,000 annual maximum)
<50%>($3,000 annual maximum)
<100%>($3,000 annual maximum)*Alternative Tax Rate
*
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 34
Special Treatmentof Long-Term Gains
1954 1986 1997
LTCGD alternate tax rate
reduced rates
*
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 35
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 36
How can one acquire property?
Name as many ways asyou can think of.
Be creative!
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 37
• find it• win it• purchase it• marry someone
who owns it• receive it as
compensation
• divorce• inherit it• receive it as a gift• steal it• squat (as the
pioneers did)• trade for it
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 38
• find it• win it• purchase it• marry someone
who owns it• receive it as
compensation
• divorce• inherit it• steal it• receive it as a gift• squat (as the
pioneers did)• trade for it
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 39
•Purchase•Gift•Inherit•Trade
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(afte
r 3/1/
13)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Asset acquiredby purchase?
Yes
(afte
r 3/1/
13)
No
Yes
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Cost + Capital Improvements— Accumulated Depr = Adjusted Basis
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Asset acquiredby purchase?
Yes
(afte
r 3/1/
13)
No No
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Acquiredby Gift?
Yes(af
ter 19
20)
No
(inheritance) Y
es
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
FMV > donor’sadjusted basis?
YesNo
Donor’s Basis2 FMV - annual exclusion
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 46
“Step into the shoes of the
donor.”
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Acquiredby Gift?
Yes(af
ter 19
20)
No
(inheritance)
NO
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
YesNo
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
YesNo
Inherited Property= FMV on DOD
“Stepped-Up” Basis
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
“Stepped-Up” Basis2 FMV - annual exclusion
“Step into the shoesof the donor.”
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
“Stepped-Up” Basis2 FMV - annual exclusion
“Step into the shoesof the donor.”
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 52
Grandpa, who is on his death bed,
wants YOU to have his 5,000
acre farm.
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 53
Should hegive it to you?Or should he
change his will?
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 54
Grandpa rec’d farm as gift from great-grandpa who had paid $1 per acre.FMV today is $500 per acre.
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 55
Grandpa rec’d farm as gift from great-grandpa who had paid $1 per acre.FMV today is $500 per acre.
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 56
Received As A Gift(simplified version)
Sales Price $2,500,000
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 57
Received As A Gift(simplified version)
Sales Price $2,500,000 – Your basis ? ? ?
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 58
Received As A Gift(simplified version)
Sales Price $2,500,000 – Your basis 5,000
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 59
Received As A Gift(simplified version)
Sales Price $2,500,000 – Your basis 5,000
Taxable Gain $2,495,000
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 60
Inherited(simplified version)
Sales Price $2,500,000
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 61
Inherited(simplified version)
Sales Price $2,500,000 – Your basis ? ? ?
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 62
Inherited(simplified version)
Sales Price $2,500,000 – Your basis 2,500,000
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 63
Inherited(simplified version)
Sales Price $2,500,000 – Your basis 2,500,000
Taxable Gain -0-
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 64
Which wouldYOU prefer?
???
???
??? ???.
???
?????? ???
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 65
Inherited(simplified version)
Sales Price $2,500,000 – Your basis 2,500,000
Taxable Gain -0-
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
YesNo
Best!
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Acquiredby Gift?
Yes(af
ter 19
20)
No
(inheritance) Y
es
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
FMV > donor’sadjusted basis?
YesNo
Donor’s Basis2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Donor’s basis+ “all” GT pd= Basis (limited)
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Donor’s basis+ “all” GT pd= Basis (limited)
Donor’s basis+ “some” GT pd= Basis
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Donor’s basis+ “all” GT pd= Basis (limited)
2 FMV - annual exclusion
Illustration
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 72
1) Prior to 1977, some generous person gave you an asset for which they paid $10,000 and which was worth $20,000 at the time of the gift. The donor paid $1,000 in gift tax.
Handout Example 1 a. 1)
Basis $10,000+ Gift Tax 1,000 11,000
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 73
1) Prior to 1977, some generous person gave you an asset for which they paid $10,000 and which was worth $20,000 at the time of the gift. The donor paid $1,000 in gift tax.
Handout Example 1 a. 1)
Sales Price $21,000 Basis $10,000+ Gift Tax 1,000 11,000
Gain $10,000
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 74
Illustration1. a. 3)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 75
3) Prior to 1977, some generous person gave you an asset for which they paid $10,000 and which was worth $15,000 at the time of the gift. The donor paid $1,000 in gift tax.
Handout Example 1 a. 3)
Basis $10,000+ Gift Tax 1,000 11,000
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 76
3) Prior to 1977, some generous person gave you an asset for which they paid $10,000 and which was worth $15,000 at the time of the gift. The donor paid $1,000 in gift tax.
Handout Example 1 a. 3)
Sales Price $ 9,000 Basis $10,000+ Gift Tax 1,000 11,000
Loss ($ 2,000)
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Donor’s basis+ “some” GT pd= Basis
2 FMV - annual exclusion
Another
Illustration
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 78
1) After 1976, some generous person gave you an asset for which they paid $10,000 and which was worth $20,000 at the time of the gift. The donor paid $1,000 in gift tax.
Handout Example 1 b. 1)
Basis $10,000+ Gift Tax ??? ? ? ?
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Gift tax x “net appreciation” total value of property
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
$1,000 x “net appreciation” total value of property
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
$1,000 x ($20,000 - $10,000)
total value of property2 FMV - annual exclusion
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 82
AssumptionFor introductory purposes, assume donor gave donee other gifts totaling > $11,000.
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
$1,000 x $10,000 = $500
$20,0002 FMV - annual exclusion
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 84
1) After 1976, some generous person gave you an asset for which they paid $10,000 and which was worth $20,000 at the time of the gift. The donor paid $1,000 in gift tax.
Handout Example 1 b. 1)
Basis $10,000+ Gift Tax 500 10,500
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 85
1) After 1976, some generous person gave you an asset for which they paid $10,000 and which was worth $20,000 at the time of the gift. The donor paid $1,000 in gift tax.
Handout Example 1 b. 1)
Sales Price $21,000 Basis $10,000+ Gift Tax 500 10,500
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 86
1) After 1976, some generous person gave you an asset for which they paid $10,000 and which was worth $20,000 at the time of the gift. The donor paid $1,000 in gift tax.
Handout Example 1 b. 1)
Sales Price $21,000 Basis $10,000+ Gift Tax 500 10,500 Gain $10,500
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 87
ConsiderAnother
Illustration
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 88
3) After 1976, some generous person gave you an asset for which they paid $10,000 and which was worth $15,000 at the time of the gift. The donor paid $1,000 in gift tax.
Handout Example 1 b. 3)
Basis $10,000+ Gift Tax ??? ? ? ?
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Gift tax x “net appreciation” total value of property
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
$1,000 x “net appreciation” total value of property
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
$1,000 x $5,000 total value of property
2 FMV - annual exclusion
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
$1,000 x $5,000 = $333
$15,0002 FMV - annual exclusion
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 93
3) After 1976, some generous person gave you an asset for which they paid $10,000 and which was worth $15,000 at the time of the gift. The donor paid $1,000 in gift tax.
Handout Example 1 b. 3)
Basis $10,000+ Gift Tax 333 10,333
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 94
3) After 1976, some generous person gave you an asset for which they paid $10,000 and which was worth $15,000 at the time of the gift. The donor paid $1,000 in gift tax.
Handout Example 1 b. 3)
Sales Price $ 9,000 Basis $10,000+ Gift Tax 333 10,333
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 95
3) After 1976, some generous person gave you an asset for which they paid $10,000 and which was worth $15,000 at the time of the gift. The donor paid $1,000 in gift tax.
Handout Example 1 b. 3)
Sales Price $ 9,000 Basis $10,000+ Gift Tax 333 10,333 Loss ($ 1,333)
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
FMV > donor’sadjusted basis?
YesNo
NO
2 FMV - annual exclusion
Possible to Have Two Bases
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)2 say something about $10,000 annual exclusion2 FMV - annual exclusion
Possible to Have Two Bases
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Donor’s Basis
FMV
Sales Price
Sales Price Area ofGain
Area ofLoss
NeitherGainnorLoss
Sales Price
2 FMV - annual exclusion
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 99
Here Are Some
Illustrations
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 100
4) Prior to 1977, some generous person gave you an asset for which they paid $10,000 and which was worth $8,000 at the time of the gift. The donor paid $500 in gift tax.
Handout Example 1 a. 4)
Basis $ ? ? ?
Possible to Have Two Bases
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Donor’s Basis
FMV
Sales Price Area ofGain
2 FMV - annual exclusion
Possible to Have Two Bases
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
$10,000
$8,000
Sales Price Area ofGain
2 FMV - annual exclusion
Possible to Have Two Bases
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
$10,000
$8,000
$11,000 Area ofGain
2 FMV - annual exclusion
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 104
4) Prior to 1977, some generous person gave you an asset for which they paid $10,000 and which was worth $8,000 at the time of the gift. The donor paid $500 in gift tax.
Handout Example 1 a. 4)
Basis $10,000+ Gift Tax ? ? ? ? ? ?
None!
All or Some
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)2 FMV - annual exclusion
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 106
4) Prior to 1977, some generous person gave you an asset for which they paid $10,000 and which was worth $8,000 at the time of the gift. The donor paid $500 in gift tax.
Handout Example 1 a. 4)
Sales Price $11,000 Basis for Gain $10,000+ Gift Tax -0- 10,000
Gain $ 1,000
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 107
Illustration1. a. 5)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 108
5) Prior to 1977, some generous person gave you an asset for which they paid $10,000 and which was worth $8,000 at the time of the gift. The donor paid $500 in gift tax.
Handout Example 1 a. 5)
Basis $ ? ? ?
Possible to Have Two Bases
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Donor’s Basis
FMV
Sales Price
Area ofLoss
2 FMV - annual exclusion
Possible to Have Two Bases
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
$10,000
$8,000
$7,500
Area ofLoss
2 FMV - annual exclusion
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 111
5) Prior to 1977, some generous person gave you an asset for which they paid $10,000 and which was worth $8,000 at the time of the gift. The donor paid $500 in gift tax.
Handout Example 1 a. 5)
Basis for Loss $8,000+ Gift Tax -0- 8,000
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 112
5) Prior to 1977, some generous person gave you an asset for which they paid $10,000 and which was worth $8,000 at the time of the gift. The donor paid $500 in gift tax.
Handout Example 1 a. 5)
Sales Price $7,500 Basis for Loss $8,000+ Gift Tax -0- 8,000
Loss ($ 500)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 113
Illustration1. a. 6)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 114
6) Prior to 1977, some generous person gave you an asset for which they paid $10,000 and which was worth $8,000 at the time of the gift. The donor paid $500 in gift tax.
Handout Example 1 a. 6)
Sales Price $9,000 Basis $ ? ? ?
Possible to Have Two Bases
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Donor’s Basis
FMV
Sales Price
Sales Price Area ofGain
Area ofLoss
Sales Price
2 FMV - annual exclusion
Possible to Have Two Bases
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Donor’s Basisof $10,000
Sales Priceof $9,000
2 FMV - annual exclusion
Area ofGain
Yields a LOSS!
Possible to Have Two Bases
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
FMV of$8,000 Area of
Loss
Sales Price of $9,000
2 FMV - annual exclusion
Yields a GAIN!Therefore
Possible to Have Two Bases
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(after
3/1/1
3)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)
Donor’s Basis
FMV
NeitherGainnorLoss
Sales Price
2 FMV - annual exclusion
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 119
Answers for b. 4 - 6(after 1976)
would be the sameas for part a.
since no gift tax addedMore of Handout
Determining the Basis of Assets
Asset acquiredby purchase?
cost + capital improvements - accumulated depreciation = adjusted basis
Federal gift tax paid(basis limited to FMV on date of gift)
Fed. Gift tax x“net appreciation”1
total value of prop.2
donor’s adjusted basis(“date” basis = donor’s date)
FMV on date of gift(“date” basis = date of gift)
basis for
donor’s adj.basis plus
FMV > donor’sadjusted basis?
All dispositions yieldLONG TERM results
FMV 6 monthsafter date of death
FMV on date of death
alt. valuationdate elected?
Acquiredby gift?
Yes
(afte
r 3/1/
13)
Yes
(afte
r 192
0)
Yes
befor
e
1/1/77
gain
Yes
No
No
(inheritance)
NoNo
lossafter
12/31/76
1 “net appreciation” = (FMV - donor’s adjusted basis)2 FMV - annual exclusion