Jonathan purchased land many years ago

Week Four Homework
(The question is worth 25 points)
Rule of Law:
For this Weeks Homework, we will consider the basis of property received in kind as a gift or
bequest (and related rules). If an inter vivos gift or death-time bequest is received in kind rather
than in cash, at what basis does the donee take the property? Carefully read both §§ 1014(a) and
1015(a) before considering the following problems. Pay particular attention to the language in §
1015(a) after the words “except that” in considering Problem 3. In addition, note §§ 1223(1) and
(9) regarding the deemed holding period of property obtained by inter vivos gift or death-time
bequest.
Questions:
1. Jonathan purchased land many years ago for $100,000, which is rented to tenant farmers who
pay Jonathan an annual rent of $5,000. Today, the land is worth $400,000. Jonathan has just
learned that he is terminally ill and does not have much longer to live. Do you advise Jonathan
to:
a. sell the land now to a buyer for $400,000 and provide a bequest in his will for the cash
proceeds to be transferred to his good friend Jill;
b. give the land to Jill now and let her sell it; or
c. provide a bequest in his will for the land to go to Jill after his death?
2. Same as 1., except that the land, which Jonathan purchased for $100,000, is now worth only
$75,000. Should Jonathan:
a. sell the land now to a buyer for $75,000 and provide a bequest in his will for the cash proceeds
to be transferred to his good friend Jill;
b. give the land to Jill now and let her sell it; or
c. provide a bequest in his will for the land to go to Jill after his death?
3. Notwithstanding your advice, Jonathan gave the land described in 2. to Jill before he died.
Rather than sell immediately, Jill held the land for several years. What is her § 1001 realized gain
or loss in each case if she eventually sells for:
a. $60,000;
b. $110,000; or
c. $80,000? See Treas. Reg. § 1.1015-1(a)(2).
4. During the years of Jill’s ownership of the land in 3. before sale, must she include the rent that
she receives from the tenant farmers, or can she exclude the rent under § 102(a) on the theory
that the rent is all a part of Jonathan’s gift of the land? See § 102(b)(1).