Question

Faith inherits an undivided interest in a parcel of land from her father on February 15, 2018. Her father purchased the land on August 25, 1991 and his basis for the land was $325,000. The fair market value of the land is $12,500,000 on the date of her father's death and is $11,000,000 six months later. The executor elects the alternate valuation date. Faith has nine brothers and sisters and each inherited a one-tenth interest.

a. What is Faith's adjusted basis for her one-tenth undivided interest in the land?

A)$1,100,000
B)$1,250,000
C)$1,325,000
D)$1,500,000

Answer 1

Faith's adjusted basis for her one-tenth undivided interest in the inherited land is $1,100,000, as the executor elected the alternate valuation date, and the land's value was $11,000,000 six months after her father's death.

Step-by-step explanation:

The adjusted basis for Faith's one-tenth undivided interest in the land, given that the executor elects the alternate valuation date, is $1,100,000.

When an individual inherits property, their tax basis in the property is the fair market value on the date of the previous owner's death (known as a step-up in basis), unless the estate chooses the alternate valuation date, which can be six months after the date of death. Given that the estate has elected the alternate valuation date and the value of the land is $11,000,000 six months after the death, we would use this lower valuation. As there are ten equal inheritors, each sibling, including Faith, would inherit a one-tenth interest. Therefore, Faith's adjusted basis in the land would be one-tenth of $11,000,000, which is $1,100,000.