What is the amount of gain that Herman may recognize after selling the house he received as a gift?

When a property is received as a gift, the recipient typically inherits the donor's adjusted basis in the property. However, when determining the gain upon the sale of a gifted property, it is essential to consider the fair market value (FMV) at the time the gift was made, especially if the FMV is less than the donor's basis. This scenario could involve the "dual basis" rule, which considers both the donor's adjusted basis and the fair market value at the time of the gift.

In this case, if Herman sells the house for an amount greater than the basis that he has inherited, the difference between the selling price and the adjusted basis is what he may recognize as a gain. This amount recognized can be influenced by prior calculations based on the information provided regarding the donor's basis and the FMV at the time of the gift.

The best answer of $32,500 may suggest that Herman's recognized gain is calculated by considering the conditions above: the basis he takes on the property (possibly the donor's adjusted basis), the selling price of the property, and how these interact according to tax regulations. It implies that Herman's selling price exceeds his adjusted basis but does not reach the next potential threshold of recognized gain in a straightforward