On February 1, Year 3, Hall learned that he was bequeathed 500 shares of common

Question

           On February 1, Year 3, Hall learned that he was bequeathed 500 shares of common stock under his father's will. Hall's father had paid $2,500 for the stock 10 years ago. Fair market value of the stock on February 1, Year 3, the date of his father's death, was $4,000 and had increased to $5,500 six months later. The executor of the estate elected the alternate valuation date for estate tax purposes. Hall sold the stock for $4,500 on June 1, Year 3, the date that the executor distributed the stock to him. How much income should Hall include on his Year 3 individual income tax return for the inheritance of the 500 shares of stock that he received from his father's estate? (Points : 4)        $5,500
       $4,000
       $2,500
       $0

Explanation / Answer

Choice "d" is correct. There is no income tax on the value of inherited property. The gain on thesale is the difference between the sales price of $4,500 and Hall's basis. Hall's basis is thealternate valuation elected by the executor. This is the value six months after date of death ordate distributed if before six months. The property was distributed four months after death andthe value that day ($4,500) is used for the basis. $4,500 - $4,500 = 0.

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