In 2002, Rich Moneybags (Rich) received a parcel of real property situated on Rose Lake from his father. At first, Rich intended to build his lake home on the property, but then decided to keep the lake property for investment - he never built anything on the property nor used the property. The fair market value of the lake property on father’s death in 2002 was $250,000. Rich’s father purchased the lake property in 1964 for $5,000. At all times, Rich’s father lived in Idaho, as did Rich. Rich needed money, so in 2013, he took out a loan of $450,000 by a promissory note, secured by a mortgage on the lake property. On January 17, 2019, Rich transferred the lake property to his daughter, Betty, because he was in failing health and could no longer take care of the property. Betty accepted the property from Rich taking title to the lake property subject to the mortgage (she did not assume the mortgage or become personally liable). The fair market value of lake property on the date it was transferred to Betty was $275,000 and the balance of the mortgage was $400,000.

(a)(1) What is the transaction as to Rich? (Hint: a transaction is between two or more parties). Discuss and explain.                (Hint: a transaction is an exchange between two or more persons).

(a)(2) What was Rich’s tax basis in the lake property at the time of the transfer to Betty? Discuss and explain

(a)(3) Discuss the income tax consequences, if any, to Rich resulting from the transfer of the lake property to Betty. Explain and support your answer, providing necessary supporting calculations. Show your computations – required. Computations only will not be sufficient.  

Answer rating: 100% (QA)

A1 Rich sold the lake property to his daughter Betty for 275 000 The mortgage balance was 400 000 ... View the full answer