Question

Graham 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 Graham's nephew, it is preferable for the transfer to be by inheritance rather than by gift.

A. True

B. False

Answer 1

The statement is True. Graham's nephew would receive the property with a new adjusted basis of $50,000, equal to its fair market value.

Step-by-step explanation:

The statement is True. When property is transferred by inheritance, the recipient receives a stepped-up basis equal to the fair market value of the property at the time of the owner's death. In this case, Graham's nephew would receive the property with a new adjusted basis of $50,000, equal to its fair market value.

This would be beneficial for the nephew because if he were to sell the property later, he would only have to pay capital gains tax on any increase in value from the stepped-up basis.