Question

When Uncle Sam died in 2019, he left his estate to his ungrateful cousin, Brian. Sam’s cost basis in his property was $1.5 million, but, due to turbulent political and economic times, it was only worth $0.5 million at his death. Sam had reinvested approximately $250,000 of dividends during his holding period, and his estate paid $500,000 in transfer taxes at his death. What is Brian’s basis in the property?

Answer 1

Answer: $500,000

Step-by-step explanation:

Even though the property had a cost basis of $1.5 million to Brian's uncle, Sam, that $1.5 million basis does not automatically transfer to him.

Instead according to "U.S.C. 1014 - U.S. Code - Unannotated Title 26. Internal Revenue Code 1014. Basis of property acquired from a decedent", the basis that will be passed to him will be the Fair market value of the property upon his uncle's death.

The property was valued at $500,000 when Uncle Sam died so that is Brian's basis in the property.