Dawn and Jamie live in a community property state.

They own a personal residence

with a basis of $500,000 and a fair market value of $800,000, and personal property
with a basis of $300,000 and a fair market value of $100,000. They also own two cars,
one with a basis of $50,000 and a faire market value of $20,000 and the other with a
basis of $40,000 and a fair market value of $30,000. Assume Jamie died in 2015 and
left all of his assets to Dawn. If Dawn sells the personal residence in 2016 doe
$1,000,000, what is her realized gain?

A. $200,000
B. $350,000
C. $500,000
D. $750,000
Answer:A

When Jamie dies, Dawn receives a step-to-fair-market value in both halves of the
personal residence. Therefore, her new basis is $800,000. Her gain at the sale is
$200,000 ($1,000,000 - $800,000)
Savannah received a gift of property from her mother, Cindy. The property was worth
$100,000 at the date of transfer. Cindy did not pay any gift tax and the annual exclusion
did not apply to this gift. Cindy had inherited the property from her father Ralph. Ralph
had a basis in the property of $5,000 and the fair market value at the time of Ralph's
death was $50,000. What is Savannah's basis in the property?

A. $5,000
B. $50,000
C. $100,000
D. It is unknown until Savannah sells the property.
Answer: B

Savannah's basis = Cindy's basis. Cindy's basis is the fair market value at her father's
death.