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Finance & Accounting
Pages 3 (753 words)
FINANCE AND ACCOUNTING (Your name) (Your institution) (Instructor’s name) (Your course) (Year) Memorandum To: The Managing Partner From: Tax consultant Date: 29th October 2011 Subject: capital gains tax on inherited property Facts; Wilma inherited a house from her Uncle John who passed away recently.
The fair market value of the house upon Bob’s death was $90,000 Issues; To establish the tax basis of the inherited property To establish the effect of taxation on her three options and to calculate the amount of taxable capital gains in each of the three options namely; 1. Walking away and letting the bank foreclose the house. 2. To offer to settle the loan with the bank in cash at the home’s fair market value of $90,000 and then staying in the home herself. 3. To sell the house to her neighbors at the cost of $90,000, incur 7% realtor fees and closing costs, pay the bank a negotiated amount totaling to $80,000 therefore remaining with $3,700. Analysis; Based on the Internal Revenue Services’ (2011), if an individual sells an inherited property for more than its fair market value, then he/she is liable for capital gains tax because the property will result to a capital gain (IRS, 2011). The tax basis of inherited property may be determined using the fair market value or the executor’s valuation however the executor’s valuation cannot exceed the fair value of the inherited property at the time of death (CCH Tax Law Editors, 2011). ...
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