ExpertHard1 markMultiple Choice
CPA · Question 15 · Area I: Individual Compliance and Planning
A wealthy individual wants to reduce their taxable estate. They own two assets: Asset A (Basis $100k, FMV $1M, high appreciation potential) and Asset B (Basis $1.2M, FMV $1M, depreciated). Which gifting strategy is most tax-efficient from an estate and income tax planning perspective?
A wealthy individual wants to reduce their taxable estate. They own two assets: Asset A (Basis $100k, FMV $1M, high appreciation potential) and Asset B (Basis $1.2M, FMV $1M, depreciated). Which gifting strategy is most tax-efficient from an estate and income tax planning perspective?
Answer options:
A.
Gift Asset A; Sell Asset B and gift the cash.
B.
Gift Asset B; Keep Asset A until death.
C.
Gift both assets.
D.
Keep both assets until death.
How to approach this question
1. Appreciated property: Gift it to remove future appreciation from estate (carryover basis applies). 2. Loss property: Sell it to recognize loss, then gift cash. Gifting loss property results in dual basis rules that may eliminate the loss benefit.
Full Answer
A.Gift Asset A; Sell Asset B and gift the cash.✓ Correct
Strategy: <br/>1. Asset A (Appreciated): Gift now. Removes $1M + future growth from estate. Donee takes carryover basis.<br/>2. Asset B (Loss): Sell now to recognize $200k loss for income tax. Gift cash. If gifted directly, the basis for loss purposes steps down to FMV, and the $200k loss is never recognized by anyone.
Common mistakes
Thinking gifting loss property transfers the loss to the recipient.
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