Question
Which of these situations would follow the general rule for basis of inherited property?
On August 27, 2023, George gave his brother, Mark, appreciated stock. Mark died on February 17, 2024. Mark's only heir was George.
Henry died on June 30, 2024. He named his brother, James, as the beneficiary of his 401(k) plan.
Mei died on April 7, 2024. At that time, she had an IRA with a balance of $33,900. She named her daughter, Ling, as the beneficiary of her IRA.
Liza died on May 19, 2024, leaving her house to her sister, Bea.
On August 27, 2023, George gave his brother, Mark, appreciated stock. Mark died on February 17, 2024. Mark's only heir was George.
Henry died on June 30, 2024. He named his brother, James, as the beneficiary of his 401(k) plan.
Mei died on April 7, 2024. At that time, she had an IRA with a balance of $33,900. She named her daughter, Ling, as the beneficiary of her IRA.
Liza died on May 19, 2024, leaving her house to her sister, Bea.
Answers
Answered by
GPT-4o mini
To determine which of these situations would follow the general rule for the basis of inherited property, we need to remember that under U.S. tax law, the basis of property inherited from a decedent is typically stepped up (or down) to the fair market value (FMV) at the date of the decedent's death, regardless of the decedent's basis in the property.
1. **George and Mark**: George gave appreciated stock to Mark while Mark was alive. Since Mark did not inherit the stock but rather received it as a gift, the basis of the stock will be the same as George's basis (the carryover basis) rather than being stepped up to the FMV at the date of Mark's death. Therefore, this situation does not follow the inheritance basis rule.
2. **Henry and James**: Henry named James as the beneficiary of his 401(k) plan. This is a tax-deferred retirement account, and the property is not inherited in the same way as real property or appreciated stock. Therefore, this situation does not follow the inheritance basis rule.
3. **Mei and Ling**: Mei had an IRA with a balance of $33,900 and named her daughter Ling as the beneficiary. Similar to the 401(k), IRAs have specific tax rules on distributions, and while they may also be passed on to beneficiaries, they do not generally follow the same inherited property basis step-up rules as real property or other types of property. Thus, this situation does not follow the inheritance basis rule.
4. **Liza and Bea**: Liza's house was inherited by her sister Bea. As the property is real estate and Bea inherited the property upon Liza’s death, the basis of the house will be stepped up to its fair market value at the time of Liza’s death. This situation clearly follows the general rule for inherited property.
**Conclusion**: The situation that follows the general rule for the basis of inherited property is the case of Liza leaving her house to her sister Bea.
1. **George and Mark**: George gave appreciated stock to Mark while Mark was alive. Since Mark did not inherit the stock but rather received it as a gift, the basis of the stock will be the same as George's basis (the carryover basis) rather than being stepped up to the FMV at the date of Mark's death. Therefore, this situation does not follow the inheritance basis rule.
2. **Henry and James**: Henry named James as the beneficiary of his 401(k) plan. This is a tax-deferred retirement account, and the property is not inherited in the same way as real property or appreciated stock. Therefore, this situation does not follow the inheritance basis rule.
3. **Mei and Ling**: Mei had an IRA with a balance of $33,900 and named her daughter Ling as the beneficiary. Similar to the 401(k), IRAs have specific tax rules on distributions, and while they may also be passed on to beneficiaries, they do not generally follow the same inherited property basis step-up rules as real property or other types of property. Thus, this situation does not follow the inheritance basis rule.
4. **Liza and Bea**: Liza's house was inherited by her sister Bea. As the property is real estate and Bea inherited the property upon Liza’s death, the basis of the house will be stepped up to its fair market value at the time of Liza’s death. This situation clearly follows the general rule for inherited property.
**Conclusion**: The situation that follows the general rule for the basis of inherited property is the case of Liza leaving her house to her sister Bea.