Question

For the scenario described (d. All of these choices are correct), which of the following statements is correct?

A) The donee's basis for property received by gift is always the fair market value at the date of the gift.
B) The beneficiary's basis for property received by inheritance is always a carryover basis.
C) The tax consequences of transferring land for $10,000 are the same whether done by gift or inheritance.
D) If the fair market value of the land is $200,000, the transfer should be by inheritance, if it is $50,000, the transfer can be either by gift or by inheritance, and if it is $10,000, the transfer should be neither by inheritance nor by gift.

Answer 1

The correct option is D). The correct statement for the scenario is that if the fair market value of the land is $200,000, the transfer should be by inheritance, if it is $50,000, the transfer can be either by gift or by inheritance, and if it is $10,000, the transfer should be neither by inheritance nor by gift.

Step-by-step explanation:

The correct statement for the scenario described is D) If the fair market value of the land is $200,000, the transfer should be by inheritance, if it is $50,000, the transfer can be either by gift or by inheritance, and if it is $10,000, the transfer should be neither by inheritance nor by gift.

The basis for property received by gift is the fair market value at the date of the gift, so statement A is incorrect.

The basis for property received by inheritance is not always a carryover basis. It can be stepped up or stepped down depending on the fair market value at the date of the decedent's death, so statement B is incorrect.

The tax consequences of transferring land for $10,000 are different depending on whether it is done by gift or inheritance. If done by gift, the donor may be subject to gift tax, while if done by inheritance, the heir may be subject to estate tax. So statement C is incorrect.

Therefore, the correct statement is D) If the fair market value of the land is $200,000, the transfer should be by inheritance, if it is $50,000, the transfer can be either by gift or by inheritance, and if it is $10,000, the transfer should be neither by inheritance nor by gift.