Olivia gives real estate basis of 800000 and fair market val

Olivia gives real estate (basis of $800,000 and fair market value of $3 million) to Ray. Determine Ray’s income tax basis if Olivia paid a gift tax of $100,000 for the transfer.

Solution

ASSUME SALE PRICE AS FAIR MARKET VALUE: $30000000 AND THE BASIS PRICE WAS $800000

SO PROFIT ON SALES IS $30000000-$800000=$29200000

AND GIFT TAX $100000 SO INCOME TAX BASIS IS ON THE PERSON GIFTING THE REAL ESTATE WITH TAX BASIS OF $100000/$29200000*100=0.34%