Taxation

Natalie receives an original Matisse painting as a gift from her aunt. At the date of the gift, the adjusted basis of the painting is $825,000, and its fair market value is $1,120,000. Her aunt paid gift tax of $392,000.

a. What is Natalie’s adjusted basis in the painting?

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b. If the fair market value of the painting at the date of the gift is $824,000 (not $1,120,000), what is Natalie’s adjusted basis?

Beth receives a car from Sam as a gift. Sam paid $35,000 for the car. He had used it for business purposes and had deducted $16,000 for depreciation up to the time he gave the car to Beth. The fair market value of the car is $15,000.

a. Assuming Beth uses the car for business purposes, what is her basis for depreciation?

b. What is the depreciation deduction for the first year? Assume Beth elects the straight-line method.

c. If Beth sells the car for $4,500 one year after receiving it, what is her gain or loss?

d. If Beth sells the car for $18,500 one year after receiving it, what is her gain or loss?

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