Some rules govern properties acquired as gifts or inheritance (Besley & Persson, 2009). The determination of depreciated amount in case any of the heirs sells the item is calculated differently. The worth of the property is dependent on the depreciation deduction allowable, Jamie’s adjusted basis, fair market value (FMV) of the property at the inheriting period and the gift tax paid by Jamie on the property before her demise. To determine the loss or gain that each of the nephews is likely to get, the following amounts must be known: Jamie’s adjusted cost basis as the time of gifting, the FMV and the amount of gift tax paid for each of the properties available for donation. There is no indication of whether the properties are equal in value; hence the nephews have the difficult task of determining their losses or gains on the property inherited.
Jamie’s favorite nephew is likely to be Sam; he will receive an appreciated property with an updated fair market value at the time of her death. This implies that he is inclined towards a beneficial tax treatment. Although he is likely to get fewer gains compared to Will; he will not have to deal with dual adjusted basis calculations like Will if he decides to dispose of the property. Jim receives an appreciated property for a gift; this means that he is likely to earn a profit equal to the appreciation amount if he decides to sell the property. Jim’s carryover basis will be similar to his aunt’s adjusted basis (Gale, Hines, & Slemrod, 2011). On the other hand, Jamie appears less interested in Will; he is set to get a depreciated property whose adjusted basis is higher than the fair market value. Will has to work extra hard on this property to gain benefits, the nature of this property transfers the tax liability to the buyer, it prevents both Jamie and Will from experiencing tax deductions related to fluctuations in the value.
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References
Besley, T., & Persson, T. (2009). The origins of state capacity: Property rights, taxation, and politics. American Economic Review , 99 (4), 1218-44.
Gale, W. G., Hines, J. R., & Slemrod, J. (Eds.). (2011). Rethinking estate and gift taxation . Brookings Institution Press.
