Part 1 Property Sales, Basis and Capital Gains question: Ben's father gave

Part 1Property Sales, Basis and Capital Gains

Ben's father gave him land with an adjusted basis of $10,000 and a fair market value of $7,000 at the gift. No gift tax was paid. Ben sold it for $8,000. What is his gain or loss?

A A $1,000 capital gain
B A $3,000 capital loss
C No gain or loss
D A $2,000 capital loss

Show the answer and explanation

Answer: C. No gain or loss

When the fair market value of gifted property is less than the donor's basis at the gift, the donee uses the donor's basis ($10,000) to figure gain and the fair market value ($7,000) to figure loss. A sale for $8,000 shows no gain using $10,000 and no loss using $7,000, so there is neither gain nor loss. Source: IRC 1015(a); Treas. Reg. 1.1015-1(a)(2); Pub. 551 (2025), Property Received as a Gift. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake

Using the donor's basis for both gain and loss.

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Original study material mapped to the public IRS SEE content outlines; not a real exam question.Not affiliated with or endorsed by the IRS or PSI. Verify figures and rules against current guidance before relying on them.