Chapter 18 - The Basis Rules for Property Transferred during Lifetime or at Death

Question 1

Income in respect of a decedent (IRD)

Answer 1

Income in respect of a decedent (IRD) is income that was owed to a decedent at the time he or she died. Examples of IRD include retirement plan assets, IRA distributions, unpaid interest and dividends, salary, wages, and sales commissions, to name only a few.

Question 2

Inventory for sale in the ordinary course of business is an example of a capital asset?

Answer 2

False
A major exception under the IRS definition of a capital asset includes inventory or property held primarily for sale to customers in the ordinary course of business.

Question 3

If a decedent exercises a general power of appointment under her will and the property passes to another, the property subject to the power does not receive a stepped-up basis in the hands of the beneficiary?

Answer 3

False
If property passes to another because the decedent exercised a testamentary general power of appointment, the property subject to the power is included in the decedent’s gross estate and thereby receives a step-up in basis to fair market value.

Question 4

Basis of gifted property can be increased by the portion of the gift tax paid attributable to the net appreciation in the value of the gift?

Answer 4

True

Question 5

A lifetime gift generally results in a carryover of basis from the donor to the donee?

Answer 5

True

Question 6

All gain or loss on the sale of property other than capital assets is taxable as ordinary income?

Answer 6

True

Question 7

The main function of basis is to measure gain or loss when property is sold, exchanged, or transferred in a taxable transaction?

Answer 7

True

Question 8

A donee of a gift obtains a new basis stepped up to the fair market value of the property at the time of the gift?

Answer 8

False
When property is transferred by gift, the donee has a carryover basis, which is the same as the basis in the hands of the donor but increased by the amount of any gift taxes paid.

Question 9

In a bargain sale of property, the seller is deemed to make a gift of the excess of the fair market value over the amount received for the property?

Answer 9

True

Question 10

The stepped-up-basis rules apply to assets transferred during lifetime that were brought back into the decedent’s gross estate for valuation purposes because of retained powers held by the decedent at death?

Answer 10

True

Question 11

When an asset is transferred to a beneficiary by reason of a decedent’s death, the beneficiary must hold this asset for 6 months or longer before selling it to qualify for long-term capital-gains treatment?

Answer 11

False
When an asset is transferred at death, the asset will always be treated as if it was held more than 12 months when it is subsequently sold.