© copyright 2000 - 2006 by m. ray gregg. all rights reserved. 1 federal income tax
DESCRIPTION
3TRANSCRIPT
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© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1
Federal Income
Tax
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© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 2
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© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 3
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© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 4
Introduction to Capital Gainsand Losses
So YouSold SomeProperty … ...
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© 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
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© 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
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© 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
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© 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
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© 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
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© 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
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© 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
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© 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
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© 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
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© 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
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© 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
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II. Other Information Needed?
B A
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Other Information Needed?
B AA. Sales Price (and date)II.
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Other Information Needed?
B AA. Sales Price (and date)B. – Basis (Cost) (and date)
II.
Today’sLesson
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© 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.
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© 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.
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© 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
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Which would you prefer?
GainST
LT
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Which would you prefer?
LossST
LT
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Special Treatment of Long-Term Gains
1954 1986
LTCGD ***
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Special Treatmentof Long-Term Gains
1954 1986 1997
LTCGD alternate tax rate*
*
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Special Treatmentof Long-Term Gains
1954 1986 1997
LTCGD alternate tax rate
reduced rates**
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Special Treatment
’54 – ’69ST 100%
<ST> <100%>($1,000 annual maximum)
LT
<LT>
*
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© 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)
**
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© 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
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© 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)
*
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© 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)
**
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© 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)
*
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© 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
*
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© 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
*
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© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 35
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How can one acquire property?
Name as many ways asyou can think of.
Be creative!
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• 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
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© 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
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•Purchase•Gift•Inherit•Trade
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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
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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
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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
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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
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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
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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
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© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 46
“Step into the shoes of the
donor.”
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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
![Page 48: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/48.jpg)
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
![Page 49: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/49.jpg)
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
![Page 50: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/50.jpg)
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.”
![Page 51: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/51.jpg)
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.”
![Page 52: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/52.jpg)
© 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.
![Page 53: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/53.jpg)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 53
Should hegive it to you?Or should he
change his will?
![Page 54: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/54.jpg)
© 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.
![Page 55: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/55.jpg)
© 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.
![Page 56: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/56.jpg)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 56
Received As A Gift(simplified version)
Sales Price $2,500,000
![Page 57: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/57.jpg)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 57
Received As A Gift(simplified version)
Sales Price $2,500,000 – Your basis ? ? ?
![Page 58: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/58.jpg)
© 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
![Page 59: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/59.jpg)
© 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
![Page 60: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/60.jpg)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 60
Inherited(simplified version)
Sales Price $2,500,000
![Page 61: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/61.jpg)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 61
Inherited(simplified version)
Sales Price $2,500,000 – Your basis ? ? ?
![Page 62: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/62.jpg)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 62
Inherited(simplified version)
Sales Price $2,500,000 – Your basis 2,500,000
![Page 63: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/63.jpg)
© 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-
![Page 64: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/64.jpg)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 64
Which wouldYOU prefer?
???
???
??? ???.
???
?????? ???
![Page 65: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/65.jpg)
© 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-
![Page 66: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/66.jpg)
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
![Page 67: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/67.jpg)
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
![Page 68: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/68.jpg)
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
![Page 69: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/69.jpg)
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
![Page 70: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/70.jpg)
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
![Page 71: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/71.jpg)
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
![Page 72: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/72.jpg)
© 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
![Page 73: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/73.jpg)
© 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
![Page 74: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/74.jpg)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 74
Illustration1. a. 3)
![Page 75: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/75.jpg)
© 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
![Page 76: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/76.jpg)
© 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)
![Page 77: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/77.jpg)
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
![Page 78: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/78.jpg)
© 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 ??? ? ? ?
![Page 79: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/79.jpg)
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
![Page 80: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/80.jpg)
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
![Page 81: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/81.jpg)
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
![Page 82: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/82.jpg)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 82
AssumptionFor introductory purposes, assume donor gave donee other gifts totaling > $11,000.
![Page 83: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/83.jpg)
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
![Page 84: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/84.jpg)
© 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
![Page 85: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/85.jpg)
© 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
![Page 86: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/86.jpg)
© 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
![Page 87: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/87.jpg)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 87
ConsiderAnother
Illustration
![Page 88: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/88.jpg)
© 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 ??? ? ? ?
![Page 89: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/89.jpg)
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
![Page 90: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/90.jpg)
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
![Page 91: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/91.jpg)
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
![Page 92: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/92.jpg)
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
![Page 93: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/93.jpg)
© 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
![Page 94: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/94.jpg)
© 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
![Page 95: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/95.jpg)
© 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)
![Page 96: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/96.jpg)
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
![Page 97: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/97.jpg)
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
![Page 98: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/98.jpg)
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
![Page 99: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/99.jpg)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 99
Here Are Some
Illustrations
![Page 100: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/100.jpg)
© 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 $ ? ? ?
![Page 101: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/101.jpg)
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
![Page 102: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/102.jpg)
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
![Page 103: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/103.jpg)
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
![Page 104: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/104.jpg)
© 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 ? ? ? ? ? ?
![Page 105: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/105.jpg)
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
![Page 106: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/106.jpg)
© 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
![Page 107: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/107.jpg)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 107
Illustration1. a. 5)
![Page 108: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/108.jpg)
© 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 $ ? ? ?
![Page 109: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/109.jpg)
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
![Page 110: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/110.jpg)
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
![Page 111: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/111.jpg)
© 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
![Page 112: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/112.jpg)
© 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)
![Page 113: © Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax](https://reader035.vdocument.in/reader035/viewer/2022062412/5a4d1b127f8b9ab05999004a/html5/thumbnails/113.jpg)
© Copyright 2000 - 2006 by M. Ray Gregg. All rights reserved. 113
Illustration1. a. 6)
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© 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 $ ? ? ?
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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
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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!
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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
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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
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© 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
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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