Suppose a person buys a share of stock for $10.The rate of taxation on accrual is 50% and the rate of taxation on realization is 25%.The day before the person dies,the stock is worth $20,as it is the day after the person dies.If the stock were sold the day before the person died,the government would receive ________ in taxes; if the stock were sold the day after the person died,the government would receive ________ in taxes.Assume that earnings on assets are taxed as they are in the current U.S.system.

Question

Quizplus · Accepted Answer

If the stock were sold the day before the person died, the person would have to pay taxes on their earnings of $10 ($20-$10). The rate of taxation on accrual is 50%, so the taxes paid would be $5 ($10 x 50%). If the stock were sold the day after the person died, the person's cost basis would be stepped up to the current value of $20, so there would be no taxable gain. Therefore, the government would not receive any taxes on the sale. So, the total amount of taxes the government would receive is $2.50 ($5/2).

Suppose a Person Buys a Share of Stock for $10