The taxpayer owns land with an adjusted basis of $20,000 and a fair market value of $50,000.If the property is going to be given to the taxpayer's nephew,it is preferable for the transfer to be by inheritance rather than by gift.

Question

Quizplus · Accepted Answer

If the property is transferred by inheritance, the nephew will receive a stepped-up basis equal to the fair market value at the time of the taxpayer's death. This means that if the nephew sells the property after inheriting it, he will only owe capital gains taxes on any increase in value above the stepped-up basis. However, if the property is transferred by gift, the nephew will receive the taxpayer's carryover basis of $20,000. This could result in a much larger tax bill if the nephew sells the property in the future.

The Taxpayer Owns Land with an Adjusted Basis of $20,000