Miguel receives tangible personal property as an inheritance in 2011. The proper
ID: 2381110 • Letter: M
Question
Miguel receives tangible personal property as an inheritance in 2011. The property was depreciated by the deceased (Miguel's father), and Miguel will also depreciate it. At the date of the deceased's death, the property was worth $532,000. The deceased had purchased it for $900,000 and taken $523,000 of depreciation on the property. Miguel takes $223,000 of depreciation on the property before selling it for $482,000 in 2013. What are the tax status of the property and the nature of the recognized gain when Miguel sells the property?
Explanation / Answer
The beneficiary can choose one of two valuation dates to determine FMV. They are the date of death or six months after death which is termed the alternate valuation date. The holding period is always considered long term.
Basis of inherited property is FMV at the date of death or alternate valuation date that the personal representative is allowed by law to choose
FMV :-Fair market value is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Sales of similar property, around the same date are typically used in figuring fair market value.
A ) Tax would be charged only on only [$482,000 - $223,000 ] = $259,000
IRC 1231 property is property used in a trade or business that is subject to depreciation and held for more than 1 year, which includes real property held for more than 1 year and used in the trade or business even though depreciation is not allowed
The most typical examples of 1231 assets are machinery and equipment, buildings.
When a 1231 asset is sold, the gain may be either ordinary or capital.
simliar case :-In a rising real estate market, using fair market value rather than purchase price to calculate the estate tax can increase the amount of tax you pay--but it can also cut the capital gains tax when you sell, the FindLaw website states. Capital gains is the difference between the purchase price of real estate--or the fair market value when you inherit it--and the sale price. If your uncle's property, for example, rose in value from $200,000 when he bought it to $600,000 when you inherited it, and you then sell for $650,000, you'll be taxed on only $50,000 instead of $450,000.