An Elderly Relative Offers to Sell You Their Used 1958

question 32

Multiple Choice

An elderly relative offers to sell you their used 1958 Cadillac Eldorado for $52,000. You note that very similar cars are selling on the open market for $87,000. You don't care for classic cars and would rather buy a new Ford Explorer for $35,000. What is the net value of buying the Cadillac?

• A) $87,000, since the Cadillac could be sold for this price.
• B) $52,000, since the Cadillac could be bought for this price.
• C) $35,000, since this is the difference between purchase and resale price of the Cadillac.
• D) $35,000, since this is the value of the car that you really want to buy.

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Definitions:

Rental Property

A property owned by an individual or entity that is rented out to tenants in exchange for monthly rent payments.

Section 1245

A provision in the U.S. tax code that treats the gain from the sale of certain types of property (primarily depreciable personal property) as ordinary income rather than capital gain.

Ordinary Income

Income earned through wages, salaries, commissions, and interest, subject to standard tax rates.

Preferential Treatment

Practices or policies that give favorable tax treatment to certain transactions, investments, or income, often to encourage specific economic activities.