Wade paid $7,000 for an automobile that needed substantial repairs. He worked nights and weekends to restore the car and spent $2,400 on parts for it. He knows that he can sell the car for $13,000. His daughter's college tuition is due in a few days. Wade wonders if it matters, after taxes, whether he sells the car and pays the tuition or whether he gives the car to his daughter and she sells it for $13,000 and pays her tuition.
Select true of false regarding the tax consequences for each scenario.
a. Wade should give the car to his daughter to sell. She will not have to pay taxes on the subsequent sale of the car, since it was acquired as a gift.
b. If Wade sells the car, he would be taxed on the gain. However, if he gives the car to his daughter and she sells, the daughter would be taxed on any gain.
c. Wade should sell the car. If Wade gives his daughter the car, he will have to pay gift tax as well as income tax, since his daughter is considered a related party.
d. Wade should sell the car, since his taxable gain will be less due to the time he spent restoring the car than if his daughter sells the car.
Assume Wade gave the car to his daughter after he had arranged for another person to buy it from his daughter. The daughter then transferred the car to the buyer and received $13,000. Who is taxed on the gain?
Wade sold the car and Wade should be taxed on the _______. However, if his daughter _______ receive the property with a binding commitment to sell it, she ______ be the taxpayer on the sale.