Teresa purchased a necklace for $100 in 1964. In 2014, Teresa gave the necklace to her granddaughter, Lindsey.

At the time of the gift, the necklace had an appraised value of $850. In 2016, Lindsey sold the necklace for $1,200.

What is the amount and character of Lindsey's gain from this sale?

a) $350 ordinary gain.

b) $350 long-term capital gain.

c) $1,100 ordinary gain.

d) $1,100 long-term capital gain

Question

Business

Turner Sosa

8 August, 07:32

Teresa purchased a necklace for $100 in 1964. In 2014, Teresa gave the necklace to her granddaughter, Lindsey.

At the time of the gift, the necklace had an appraised value of $850. In 2016, Lindsey sold the necklace for $1,200.

What is the amount and character of Lindsey's gain from this sale?

a) $350 ordinary gain.

b) $350 long-term capital gain.

c) $1,100 ordinary gain.

d) $1,100 long-term capital gain

+3

Answers (1)

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Martha Santiago · Answer 1

d) $1,100 long-term capital gain

Explanation:

Given the information from the question. We know that a long-term capital gain or loss comes from investment that was possessed for a year or longer. However in this case, since the necklace was a gift. Therefore, there were no capital gain in 2014. In 2016, Lindsey sold the necklace for $1200. Therefore, the capital gain on the necklace will calculated as $1200 - $100 = $1100. Where the $100 is a cost purchase for the previous owner. Therefore, long-term capital gain is $1100 which is option D.