Question

Tom and Elizabeth purchase land for $1,000,000—Tom furnishes $400,000 and Elizabeth $600,000 of the purchase price. Title to the property is held as joint tenants with right of survivorship. Elizabeth dies first ten years later when the land is worth $2,000,000.

a. How much of the property is included in Elizabeth's gross estate? $

b. What is Tom's income tax basis in the property? $

Answer 1

Part a -- How much of the property is included in Elizabeth's gross estate

= Amount paid by Elizabeth to purchase land $600,000 / Total Cost of Land Purchased $1,000,000 x Land Worth after 10 years $2,000,000

= $1,200,000

Part b -- Tom's Income Tax Basis

Tax basis of property is generally the property's cost; the amount paid for the property in cash or other property but in the case given after the death of Elizabeth the land will be valued and the tax basis will be the portion of valued amount of land related to Tom.

= Amount paid by Tom to purchase land $400,000 / Total Cost of Land Purchased $1,000,000 x Land Worth after 10 years $2,000,000

= $800,000