Question

Jamie inherits stock (a capital asset) from his brother, who died in March of 2017, when the property had a $7.3 million FMV. This property is the only property included in his brother's gross estate and there isa taxable estate. The FMV of the property as of the alternate valuation date was $6.8 million. Read the requirements. Requirement a. Why might the executor of the brothers estate elect to use the alternate valuation date to value the property? (Enter your answer in whole dollars.) The executor of the brother's estate may elect the alternative valuation date to value the property because would be S$ less and the Requirement b. Why might Jamie prefer the executor to use FMV at time of the death to value the property? (Enter your answer in whole dollars.) Jamie might prefer the executor to use FMV at the time of death because would be $ Requirement c If the marginal estate tax rate is 40 and Jamie's marginal income tax rate is 25%, which value should the executor use? Enter your answer in whole dollars. higher and he might have a when he sells or exchanges the land. If the If the alternative valuation date is used to value the property, the potential savings in estate tax is $ FMV at time of the death is used to value the property, and the property is subsequently sold at a gain, income tax savings to Jamie would be $ hus the

Answer 1

a) The executor of the brother's estste may elect the alternative valuation date to value the property because

The value of the taxable estate would be $500000 ($7.3 million - $6.8 million) less and the estate tax is reduced.

b) Jamie might prefer the executor to use FMV at the time of death necause Jamie's basis for the property would

be $500000 higher and he might have a smaller gain or larger loss when he sells or exchanges the land.

c) If the alternative valuation date is used to value the property, the potential saving in estate tax is $200000

($500000*40%) . If the FMV at time of the death is used to value the property, and the property is subsequently sold

at a gain, the income tax savings to jamie will be $75000 ($500000*15%) thus the alternate valuation date should

be elected.

Note :- Long term capital gain tax rate = 15%