A father deeded a house as a gift to his son in 1994 but retained the right to live in the house for the remainder of his life. The father died recently. The following are relevant facts.
The father bought the house in 1980 for $60,000.
The fair market value of the property at the time of the gift in 1994 was $110,000.
The father filed a timely gift tax return but paid no gift tax because of the applicable credit amount.
The fair market value of the property at the time of the father’s death was $245,000. The son sold the property 6 months after his father’s death for $250,000.
When the son sold the property he had a gain of:
(A) $5,000
(B) $135,000
(C) $140,000
(D) $190,000
Provide a detailed explanation for your answer. Only answer if you have a strong estate planning background.