Two years ago, Felicia received as a gift from her aunt a bracelet worth $5,000. Her aunt bought it many years ago for $800. If Felicia sells the bracelet for $4,000, her basis for figuring gain or loss is:
a. Incorrect. A zero basis is used only when a taxpayer does not have information to support a different basis.
b. Correct. Because the FMV at the time of the gift was more than the donor”s adjusted basis, the taxpayer”s basis is the donor”s adjusted basis of $800.
c. Incorrect. The sale price of $4,000 is not the basis of the property.
d. Incorrect. The FMV of the property at the time of the gift ($5,000) is not the basis because it was not less than the donor”s adjusted basis. FMV would be the basis only if the donor”s adjusted basis at the time of the gift was less than FMV and the taxpayer sold the property at a loss.