Question

At his death, on January 1, 2012, Morris owned shares of ABC Corporation common stock, with a fair market value of $50 per share, which he had purchased in 2001 for $25 per share. If Morris' executor elected to value the estate by using the alternate valuation date, but then sold the shares through a broker-dealer on May 15, 2012 at $40 per share, what is the estate's basis per share for estate tax purposes?

1) $40
2) $125
3) $15
4) $50

Answer 1

The estate's basis per share for estate tax purposes is $25 per share.

Step-by-step explanation:

In this scenario, Morris' estate elected to use the alternate valuation date for the estate's valuation, which is the six-month anniversary of his date of death, or July 1, 2012. However, the shares of ABC Corporation common stock were sold on May 15, 2012. Therefore, the fair market value of the shares on May 15, 2012, which was $40 per share, is used to determine the estate's basis for estate tax purposes.

The estate's basis per share is the purchase price of the stock, which was $25 per share, since it is less than the fair market value of the stock on the date of Morris' death.

Therefore, the estate's basis per share for estate tax purposes is $25 per share.