Question

Kelly inherits land which had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4, 2018, the date of the decedent’s death. The executor distributes the land to Kelly on November 12, 2018, at which time the fair market value is $49,000. The fair market value on February 4, 2019, is $45,000. In filing the estate tax return, the executor elects the alternate valuation date. Kelly sells the land on June 10, 2019, for $48,000. What is herrecognized gain or loss? ($1,000) ($2,000) ($47,000) $1,000 None of the above

Answer 1

The correct option is;

Her recognized loss is ($1,000)

Explanation:

The given information are;

The basis of the land to the decedent = $95,000

The land's market value on 4th of August 2018 when the decedent died = $50,000

The alternate valuation date = 6 months + The date of death of the decedent = 4th February, 2019

The value filed by the executor on the tax return using the alternate valuation date = The market value of the estate on 4th of February 2019

The market value of the land on 4th of February 2019 = $45,000

∴ The value filed by the executor on the tax return using the alternate valuation date = $45,000

The value of the land on November 12, 2018 when the executor distributed the land to Kelly = $49,000

The value at which Kelly sells the land on June 10, 2019 = $48,000

Given that, recognized gain is the profit made from selling an asset based on the value of the asset when it was obtained, we have;

Kelly's recognized gain or loss = (The value at which Kelly sells the land) - (The value of the land when the executor distributed the land to Kelly)

Kelly's recognized gain or loss = $48,000 - $49,000 = -$1,000 = ($1,000)

Therefore, Kelly's recognized loss = ($1,000).