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Question 1
Tina died in 2020 and left each of her three grandchildren, Avril, Samantha and Tucker, $120,000 in cash. Tina's estate was liable for estate tax. The estate tax is subtracted from these bequests.
Correct The estate tax is considered tax inclusive because the donee receives the property, less the estate tax owed on it.
Incorrect! The estate tax is considered tax inclusive because the donee receives the property, less the estate tax owed on it.
Correct
Incorrect!
Question 2
Kristen met her fiance, Jerry, when he was an exchange student in Germany during his junior year in college. After a year long courtship, Kristen left her hometown of Frankfurt to move with Jerry to San Antonio, TX. They planned to get married on Valentine's Day of 2020. However, three months after moving to Texas, Kristen was killed in a car accident. During the time of their cohabitation, Kristen had acquired property valued at $200,000.
Correct
Incorrect!
Correct
Incorrect!
Correct Ordinarily, the exemption amount for 2020 is $11,580,000. However, this amount only applies to estates of U.S. citizens or residents. For a non-citizen, the exemption amount is $60,000. Here, Kristen's estate is taxable on the amount in excess of $60,000 (or $140,000), since she was a German citizen.
Incorrect! Ordinarily, the exemption amount for 2020 is $11,580,000. However, this amount only applies to estates of U.S. citizens or residents. For a non-citizen, the exemption amount is $60,000. Here, Kristen's estate is taxable on the amount in excess of $60,000 (or $140,000), since she was a German citizen.
Correct
Incorrect!
Question 3
Karen owns an apartment building in Boulder, CO. She bought it for $60,000 20 years ago. The apartments are old and need a lot of repairs. Since she does not want to invest a lot of money into fixing up the units, she rents them out to low income tenants, as part of a Section 8 program. During the time Karen has owned the property, the vacant land near her property has sold for millions of dollars. In fact, there is a local developer who wants to buy her building and replace it with a shopping center. Currently, the building is worth $250,000. If it were a shopping center, it would be valued at $2,250,000. Karen recently died unexpectedly; her will left the apartment building to her son, Kenny. He never liked the idea of being a landlord, so a year after his mother's death he sold the building to the developer and pocketed $2,000,000. What is Kenny's capital gain?
Correct
Incorrect!
Correct When someone inherits property, that person is entitled to a step up in basis, pursuant to I.R.C. section 1014, to the fair market value of the property immediately before the decedent's death. To calculate the gain on the sale, the basis is subtracted from the sale price. Here, the building was worth $250,000 at the time of Karen's death. Later, Kenny sold it for $2,000,000. So, his gain on the sale is the difference between those two amounts, or $1,750,000.
Incorrect! When someone inherits property, that person is entitled to a step up in basis, pursuant to I.R.C. section 1014, to the fair market value of the property immediately before the decedent's death. To calculate the gain on the sale, the basis is subtracted from the sale price. Here, the building was worth $250,000 at the time of Karen's death. Later, Kenny sold it for $2,000,000. So, his gain on the sale is the difference between those two amounts, or $1,750,000.
Correct
Incorrect!
Question 4
Kristen met her husband, Jerry, when they were both exchange students in Germany during their junior year in college. After a year long courtship while abroad, Kristen decided that when they returned to the U.S. she would leave her hometown of Dayton, OH to move with Jerry to Raleigh, NC. They married on Valentine's Day of 2020. However, three months after the wedding, Kristen was killed in a car accident. During the time of their marriage, Kristen had acquired property valued at $200,000, which was left to Jerry as a life estate. Kristen's estate qualifies for the unlimited marital deduction.
Correct
Incorrect!
Correct Although there is an unlimited marital deduction for surviving spouses who are U.S. citizens, certain types of property do not qualify for this deduction. Specifically, terminable interests, such as life estates, do not qualify. Here, since Kristen's estate left her property as a life estate, it does not qualify for the unlimited marital deduction.
Incorrect! Although there is an unlimited marital deduction for surviving spouses who are U.S. citizens, certain types of property do not qualify for this deduction. Specifically, terminable interests, such as life estates, do not qualify. Here, since Kristen's estate left her property as a life estate, it does not qualify for the unlimited marital deduction.
Question 5
Desiree recently died after a long illness. Desiree's will left her assets to her niece, Stephanie, and her brother, Saul. Her estate contained a personal residence in St. Louis, MO, two cars, furniture and some stock. An old insurance policy Desiree owned took care of her funeral expenses. Saul, as the executor, paid $2,400 to a lawyer to handle the estate. Saul also paid outstanding bills for property taxes and utilities. There was also a non-recourse mortgage on the home. Which item would not be deductible from the gross estate?
Correct In determining the taxable estate, certain expenses are permitted as deductions. A non-recourse mortgage would not be deductible in calculating the taxable estate because the decedent was not personally liable for the debt.
Incorrect! In determining the taxable estate, certain expenses are permitted as deductions. A non-recourse mortgage would not be deductible in calculating the taxable estate because the decedent was not personally liable for the debt.