Question

65 WOR 3) . In 2016, Aaron purchased a classic car for $12,000 that he planned to restore. However, Aaron is too (1pts) busy to work on the car and gives it to his daughter Ellie in 2020. At this time, the fair market value of the car has declined to $10,000. Aaron paid no gift tax on the transaction. Ellie completes some of the restoration herself with out-of-pocket costs of $5,000. She later sells the car for $30,000. What is Ellie's recognized gain or loss on the sale of the car?

Answer 1

* Ellie got the car as gift from her father

*donor's adjusted basis is taken as $12000 as Ellie gains from the sale of the car(please refer publication 551)

*she spent $5000 for improvement of the car

*as the donor acquired it in 2016 and gifted it in 2020 it is long term property

*Long term capital gain to Ellie =$30000(selling price)-$12000+$5000=$13000

*FMV is not considered as the transaction results in gain