Calculating Taxable Gain on Sale of Property

Understanding Taxable Gain Calculation

During the current year, Stan sells a tract of land for $800,000 that he received as a gift from Maxine. The property was gifted to him on March 10, 1995, with a Fair Market Value (FMV) of $310,000. The taxable gift was $300,000 after considering the annual exclusion of $10,000 in 1995. Maxine purchased the property on April 12, 1980, for $110,000 and paid a gift tax of $12,000 at the time of the gift.

To determine the taxable gain on the sale of the property, we need to calculate the property's basis and the selling price. The basis is the higher of the FMV at the time of the gift or the donor's adjusted basis. In this case, the basis is $310,000 as it is higher than the adjusted basis of $110,000. In addition, Stan also paid a sales commission of $16,000 to sell the property.

The taxable gain is calculated as the selling price minus the basis, minus any expenses related to the sale. Therefore, the taxable gain on the sale of the property is $800,000 - $310,000 - $16,000 = $474,000. This amount is subject to capital gains tax.