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30 January, 10:22

Parrot received land as a gift with a fair market value of $5,000. The land was purchased by the donor for $8,000. The land is sold for $6,000. What amount of gain should be reported?

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  1. 30 January, 14:14
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    Loss of $2,000

    Explanation:

    In this scenario, we have the following information:

    • The adjusted cost basis: $8,000 (the amount paid by the donor)

    • The fair market value: $5,000

    • The sold amount: $6,000

    Parrot's basis in the land is $8,000, as same basis the donor had.

    So when he sells it, he must report loss of $2,000 on the sale.
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