D is corrent. The requirement is to determine Sheri’s basis for the jewelry received as a gift. A donee’s basis for gift property is generally the same as the donor’s basis, increased by any gift tax paid that is attributable to the property’s net appreciation in value. The amount of gift tax that can be added is limited to the amount that bears the same ratio as the property’s net appreciation bears to the amount of taxable gift. For this purpose, the amount of gift is reduced by the $14,000 ($13,000 for 2012) annual exclusion that is allowable with respect to the gift. Thus, Sheri’s basis is $19,000 + [$8,000 ($54,000 — $19,000) / ($54,000 — $14,000)] = $26,000.
A is incorrect. Since the jewelry was appreciated, its basis can’t be lower than $18,000.
B is incorrect. Only a portion of the gift tax can be added to basis.
C is incorrect. A different amount of gift tax must be added to basis.
|
