Question

Jessica owns investment land currently worth $5,000,000. She paid $3,000,000 for the land 10 years ago. She expects that the land will probably increase in value to at least $8,000,000 before she dies. She has not previously given any taxable gifts.

a. If Hessica gives the land to her son Mark now, what basis will he use for determining gain when he sells the land?

b. If Jessica dies in 2017 and bequeaths the land to her son, what basis will he use for determining gain when he sells the land?

c. If Jessica's son plans to keep the land instead of selling it, should she give it to him now or bequeath it to him? Explain the reason for your choice.

Answer 1

a. If Jessica gives land to son then the FMV $5,000,000 shall be considered as his cost of acquisition and gain will be calculated based on it. the difference (5-3) $2,000,000 will be assessed to gift tax

b. if bequeaths the land then the cost will be FMV of 2017 and no gift tax on the difference of cost and FMV. So $5,000,000 will be cost

c. Bequeath is the better option as, After Inheritance he can sell the property shortly with no capital gain, as the FMV will be almost the same at the time of inheritance.