Joycelyn gave a diamond necklace to her granddaughter Emma. Joycelyn had purchased the necklace in 1980 for $20,000. The FMV of the necklace at the time of the gift was $50,000. After deducting the annual exclusion, the amount of the gift was $35,000. Gift taxes of $10,000 were paid. What is Emma's adjusted basis in the necklace?

$28,571 is Emma's adjusted basis in the necklace.

Emma's basis will be summation of her grandmother's basis in the property and the share of the gift tax attributable to the appreciation corresponding to the gifted date.

$20,000 + [$10,000 × ($50,000-20,000) / $35,000]

$20,000 + [($10,000 × $30,000) / $35,000]

$20,000 + [($10,000 × $30,000) / $35,000]

$20,000 + [$3000,000,000 / $35,000]

$20,000+$8571

$28,571.

answer; institution based;