ACC 456 Week 4 Property Transactions and Basis Example

Selling the Family Home and Five Other Assets in One Year: Basis Rules for Purchased, Inherited and Gifted Property, a Wash Sale and Capital Gain Netting for a Composite Retired Couple

[Student Name]

University of Phoenix

ACC/456: Individual/Estate Taxation

Week 4 Assignment

[Instructor Name]

[Date]

The couple and all figures are composites written for a model paper; 2025 rules come from the sources listed.

A composite retired couple in their late sixties decided in 2025 to move closer to their grandchildren. They sold the house they had owned since 1998 and, while reorganizing their finances, sold several investments and a coin collection. For each sale, the price was the easy part; the harder question was what the couple's basis was, and the answer depended on how each asset came to them. This paper determines the gain or loss on each sale and nets the results.

The Home

The couple bought their home in 1998 for $210,000 and later added a family room and replaced the roof, capital improvements of $60,000, for a basis of $270,000. They sold it for $915,000 and paid $52,000 in commissions and closing costs, so the amount realized was $863,000 and the realized gain $593,000.

Married couples filing jointly may exclude up to $500,000 of gain on the sale of a principal residence if either spouse owned the home and both lived in it as their main home for any two of the five years that end on the sale date (Internal Revenue Service, 2025a). They easily meet both tests. The excluded gain is $500,000, and $93,000 is long-term capital gain.

Inherited Stock

The wife inherited shares of a utility company when her mother died in 2021. Her mother had paid $30,000 for them decades earlier, and they were worth $140,000 at her death. An heir's basis generally steps up, or down, to what the property was worth on the day the owner died, so the wife's basis is $140,000, and the gain that built up during her mother's life is never taxed. She sold the shares for $176,000, a long-term gain of $36,000. Inherited property is treated as held long-term regardless of the actual holding period.

Gifted Stock

The husband's uncle gave him shares of a regional retailer in 2019, when they were worth $38,000. The uncle's basis was $50,000. For gifted property, the recipient generally takes the donor's basis, but when the value at the gift is lower than the donor's basis, a dual basis applies: the donor's basis of $50,000 is used to measure gain, and the lower value of $38,000 is used to measure loss (Internal Revenue Service, 2024). The husband sold the shares for $44,000. Measured against $50,000 there is no gain, and measured against $38,000 there is no loss, so the sale produces neither.

Bank Shares and a Wash Sale

In March 2025 the couple bought bank shares for $20,000. By November they had fallen to $12,000, and the couple sold them to harvest the loss. Twelve days later, believing the bank would recover, they bought the same number of shares for $12,500. Because substantially identical stock was purchased within 30 days, the $8,000 loss is disallowed under the wash sale rule. It is added to the basis of the new shares, which becomes $20,500, and the holding period of the old shares carries over. The loss will be recognized when the new shares are sold, if they are not repurchased again (Internal Revenue Service, 2025b).

The Coin Collection

The husband had collected gold and silver coins for fifteen years at a cost of $8,000 and sold the collection for $20,000. The $12,000 gain is long-term, but gains on collectibles are taxed at a maximum rate of 28% rather than the usual 15% or 20%.

Netting Gains and Losses

Long-term gains are $93,000 from the home, $36,000 from the inherited stock and $12,000 from the coins, a total of $141,000. The couple also has a $15,000 long-term capital loss carryover from losses in 2022. Under the netting rules, a long-term loss carryover first offsets gains in the 28% group, so it eliminates the $12,000 collectibles gain and reduces the other long-term gains by the remaining $3,000. Net long-term capital gain is $126,000, all in the group taxed at 15% for a couple at their income. There are no short-term gains or losses after the wash sale disallowance.

Their other income, mainly pensions and taxable Social Security, brings their modified adjusted gross income to about $222,000, below the $250,000 threshold for the 3.8% net investment income tax, so that tax does not apply.

Records the Couple Needed

The computations above depended on records that many families do not keep. The home's basis required the 1998 closing statement and invoices for the family room and roof; without them, the couple could have claimed only the purchase price and lost $60,000 of basis. The inherited shares required the estate's valuation at the date of death, which the executor had obtained from the brokerage firm. The gifted shares required the uncle's purchase records and a statement of what the shares were worth when he handed them over. And the coin collection required purchase receipts that the husband had kept in a binder for fifteen years. The couple's preparer asked for each document before computing any gain, which is the right order of work.

Why the Rules Matter to Behavior

Research on brokerage accounts found that individual investors sold losing stocks more often toward year end and held on to winners, patterns consistent with tax-motivated trading (Ivković et al., 2005). The couple's November loss sale is an example, but the wash sale rule prevented them from keeping the shares and the loss at the same time. The stepped-up basis at death, meanwhile, encourages older investors to hold appreciated assets rather than sell them, which is why the wife's mother never sold the utility shares.

Conclusion

The couple's six transactions produced $126,000 of net long-term capital gain after the $500,000 home exclusion, a stepped-up basis on inherited stock, a no-gain, no-loss result on gifted stock, a disallowed wash sale loss carried into new shares and a collectibles gain absorbed by a loss carryover. In each case, how the property was acquired mattered as much as its sale price.

References

Internal Revenue Service. (2024). Basis of assets (Publication 551). https://www.irs.gov/publications/p551

Internal Revenue Service. (2025a). Selling your home (Publication 523). https://www.irs.gov/publications/p523

Internal Revenue Service. (2025b). Investment income and expenses (Publication 550). https://www.irs.gov/publications/p550

Ivković, Z., Poterba, J., & Weisbenner, S. (2005). Tax-motivated trading by individual investors. American Economic Review, 95(5), 1605-1630. https://doi.org/10.1257/000282805775014461