How to Determine Basis of Inherited Property and Calculate Gain
a. What is the basis of the inherited property to Suzette if the alternate valuation date was not elected?
- $40,000
What is the basis of the inherited property to Suzette if this property qualifies for using the alternate valuation date?
- $35,000
b. Assuming that Suzette sold the property on November 1, 2019, for $47,500, what are the amount and nature of the gain?
- If the alternate valuation date was not elected: $7,500 short-term capital gain
- If this property qualifies for using the alternate valuation date: $12,500 short-term capital gain
Answer:
The basis of the inherited property for Suzette is either $40,000 (if the alternate valuation date wasn't elected) or $35,000 (if the alternate valuation date was elected and the property qualifies). If Suzette sold the property, the gain is either $7,500 or $12,500, depending on the use of the alternate valuation date.
The basis of the property that Suzette inherited from her father is determined by considerations based on the Fair Market Value (FMV) at the date of death or the Alternate Valuation Date (AVD), if elected. If the alternate valuation date was not elected, the basis of the inherited property for Suzette is the FMV at the date of death, which is $40,000. If the alternate valuation date was used and the property qualifies for it, the inheritance basis would be the FMV six months after the death of her father, which is $35,000.
If Suzette sold the property for $47,500, the gain realized differs based on the use of the alternate valuation date. If the alternate valuation date was not elected, the gain is calculated as the selling price minus the adjusted basis at the date of death, resulting in $7,500. This would be considered a short-term capital gain as the property was sold within a year. If the alternate valuation date is used, the gain is calculated by subtracting the selling price from the adjusted basis six months after the death, resulting in $12,500, also classified as a short-term capital gain.