Calculating Basis and Gain on Inherited Property
a. What is the basis of the inherited property to Suzette
1. If the alternate valuation date was not elected?
2. If this property qualifies for using the alternate valuation date?
b. If Suzette sold the property on November 1, 2021, for $48,750, what are the amount and nature of the gain
1. If the alternate valuation date was not elected?
2. If this property qualifies for using the alternate valuation date?
Answer:
a. 1. If the alternate valuation date was not elected, the basis of the inherited property to Suzette would be the fair market value (FMV) at the date of her father's death, which is $45,000. This means that Suzette would use this value as the starting point for calculating any gains or losses when she sells the property.
2. If this property qualifies for using the alternate valuation date, Suzette would have the option to use the FMV of the property six months after her father's death, which is $43,000, as the basis. This means that Suzette could use the lower value to potentially reduce any gains or losses when she sells the property.
b. 1. If the alternate valuation date was not elected and Suzette sold the property on November 1, 2021, for $48,750, the amount of gain would be the difference between the selling price ($48,750) and the basis of the property ($45,000). So the gain would be $48,750 - $45,000 = $3,750. The nature of the gain would depend on the holding period of the property and Suzette's individual tax circumstances.
2. If this property qualifies for using the alternate valuation date and Suzette sold the property on November 1, 2021, for $48,750, the amount of gain would be the difference between the selling price ($48,750) and the basis of the property ($43,000). So the gain would be $48,750 - $43,000 = $5,750. The nature of the gain would depend on the holding period of the property and Suzette's individual tax circumstances.
When inheriting property, it's crucial to understand the basis for calculating gains or losses when selling the property. The basis of the inherited property can vary depending on whether the alternate valuation date was elected and the selling price.
If the alternate valuation date was not elected, the basis would be the fair market value (FMV) at the date of the decedent's death. In this case, Suzette's basis would be $45,000. However, if the alternate valuation date was chosen and the property qualifies for it, Suzette could use the lower FMV of $43,000 six months after the death as the basis.
When Suzette sells the property, the amount and nature of the gain will depend on the basis used. If the alternate valuation date was not elected and Suzette sells for $48,750, the gain would be $3,750. Conversely, if the property qualifies for using the alternate valuation date, the gain would be $5,750 under the same selling price.
It's important to consider individual tax circumstances and consult with a tax professional for accurate and personalized advice on calculating gains and basis for inherited property.