Jacob bought land many years ago for $7,000, and it was appraised at $20,000 just before he sold it to his cousin Caleb for $10,000. In other words, Jacob sold the land at a deep discount to his cousin! What are Jacob’s tax consequences? At what basis does Caleb take the land? The theoretically correct answer is that Jacob sold 50% of the land (worth $10,000) for $10,000 and made a gift of the remaining 50% (worth $10,000), which means that 50% of the basis ($3,500) would be allocated to the sale transaction and 50% to the gift transaction. Under that approach, Jacob would recognize a $6,500 gain under § 1001 ($10,000 A/R less $3,500 allocated basis) with respect to the 50% interest that he sold. Caleb would take a $10,000 cost basis (under § 1012) in 50% of the property and a $3,500 carryover basis (under § 1015(a)) in 50% of the property for a total basis of $13,500. But that is not the approach taken by the regulations in the case of a “part gift/part sale” transaction. What are the results to both Jacob and Caleb under Treas. Reg. §§ 1.1001-1(e) and 1.1015-4? How would your answers change if Jacob’s basis in the land had been $12,000 instead of $7,000?