Capital gain on gifted condo

[Greenbriar]

Father deeds over condo to two sons for $5 in SC. Condo is not rental property and has $170,000 in basis. Two questions: 1) does father's basis go to the sons or is it $5? 2) Assuming sons get father's basis, can they take capital loss if they sell it for less than $170,000? Thanks.

[solomon]

The donee

has dual basis at the time of the gift: FMV and father's basis. Upon sale, depending upon being sold for gain or loss, one of the other will be used.

[WhiteOleander]

No. "Losses cannot be tranferred by gift" per TTB. Read info on page 6-3 under Basis and Holding Period Rules.

[Greenbriar]

Don't have TTB

No. "Losses cannot be tranferred by gift" per TTB. Read info on page 6-3 under Basis and Holding Period Rules.

I don't the TTB yet, I've ordered it for the first time, but I assume that the rules for 2nd home prevail, i.e. no losses on 2nd home, even if it was a gift, right? Thanks.

[WhiteOleander]

I don't the TTB yet, I've ordered it for the first time, but I assume that the rules for 2nd home prevail, i.e. no losses on 2nd home, even if it was a gift, right? Thanks.

No not talking about that. This would pertain to any type of gifted property.

FROM TTB page 6-3:

If the donor's adjusted basis was more than the FMV at the time of the gift, the donee's basis is the lesser of:
1 The donor's adjusted basis at the time of the gift, adjusted for any gift tax paid, or
2 the FMV of the property at the time of the gift.

If using the FMV as the basis results in a gain, there is no gain or loss on the sale.

[solomon]

May be

"If using the FMV as the basis results in a gain, there is no gain or loss on the sale."

I believe there is no gain or loss if the selling price is less than donor basis and more than fmv at the time of the gift. For example, basis 170k and fmv 150k at time of gift. Later it is sold for 160k - then no gain or loss. However, if sold for 180k then a gain of 10k. If sold for 140k, then a loss of 10k.

[geekgirldany]

You need get the FMV. This was covered really good in my EA Book.

If the FMV on the date of the gift is less than the donor's basis, the donee has a duel basis for the property.
- Loss basis. The FMV at the date of the gift is used if the property is later transferred at a loss.
-Gain basis. The donor's basis is used if the property is later transferred at a gain.

If the property is later transferred for more than FMV at the date of the gift but for less than the donor's basis at the date of gift, no gain/loss is recognized.

Examples:

1. Chester received a gift of stock in the current year. Chester later sold this stock for $8,280. When Chester received the stock, the stock had a fair market value of $7,200 and an adjusted basis of $12,000. What is the amount of Chester’s capital gain or loss?

Answer: No Gain or Loss. For determining gain on the sale of property acquired by gift, the basis is the donor’s adjusted basis. Chester’s sale results in no gain ($8,280 sales price – $12,000 adjusted basis). For determining loss on the sale of property acquired by gift, the basis may not exceed the fair market value of property at the date of the gift. Hence, there is no loss ($8,280 sales price – $7,200 basis).


2. Donna received land as a gift from her grandfather. At the time of the gift, the land had a fair market value of $80,000 and an adjusted basis of $100,000 to Donna’s grandfather. One year later, Donna sold the land for $105,000.

Gain is $5,000. The FMV of the land was less than the donor’s basis in the land ($100,000) at the date of transfer. Therefore, Donna (the donee) has a dual basis in the land. The grandfather’s (donor’s) basis is used since the property is subsequently sold at a gain. Donna’s sale results in a $5,000 gain ($105,000 sales price – $100,000 basis = $5,000 gain).

[Bees Knees]

Special rules apply to sales and exchanges between related parties. If the father sold the condo at a loss, the loss is suspended under the related party rules.

The following examples are given in Pub 544, page 21:

Example 1. Your brother sold stock to you
For $7,600. His cost basis was $10,000. His loss
Of $2,400 was not deductible. You later sell the
same stock to an unrelated party for $10,500,
realizing a gain of $2,900 ($10,500 minus$7,600).
Your recognized gain is only $500, the gain that
is more than the $2,400 loss not allowed to your
brother.

Example 2. Assume the same facts as in
Example 1, except that you sell the stock for
$6,900 instead of $10,500. Your recognized loss
is only $700 ($7,600 minus$6,900). You cannot
deduct the loss not allowed to your brother.

[Greenbriar]

My original scenario

Bees,
My original post was along these lines: father deeds condo over to sons for $5; condo, which is not rental property, has basis of $170k and fmv of $160k. If sons sell for $160k, can they take a loss. I thought not. What if they sold for $150k? I'm really confused. Thanks.