Suppose Father, Ernst Blofeld, is in good health and buys 10 shares of stock in one year for $1,000. In the next year when they have risen in value to $1,500 he gives them to his daughter by his first marriage, Allegra. He loves Allegra. Then, in the next year, Allegra sells the shares for $2,100. Who is taxed on what? See §1015, §1001.
1. Suppose Father, Ernst Blofeld, is in good health and buys 10 shares of stock in one year for $1,000. In the next year when they have risen in value to $1,500 he gives them to his daughter by his first marriage, Allegra. He loves Allegra. Then, in the next year, Allegra sells the shares for $2,100. Who is taxed on what? See §1015, §1001.
2. Some time later Ernst died in a hunting accident in Africa and the facts revealed that Ernst had willed the shares to Allegra when they were worth $1,500, and Allegra sold them the next year, as above, for $2,100? See §1014.
3. Suppose the same events, but that Ernst paid $1,000 for the stock and that Allegra sold the stock for $600. See especially Regulations §1.1014-1, -2, -5 and §1.1015-1, -4, -5.
a. What result to Allegra if the transfer was a gift from Ernst before he left for Africa, when the stock was worth $700?
b. What result to Allegra if the transfer was a bequest when the stock was worth $700?
4. Same as "3” except that the sales price was $900. If Ernst, senses doom in Africa approaching, what kinds of property should Ernst give away or sell during life and what should be kept until death and willed to Allegra?
5. Just before the unpleasantness in Africa, Ernst had contracted cancer and was given only a few years to live. Allegra gratuitously deeded him her interest in their jointly owned vacation property. Allegra’s share of the property has a basis of $10,000 and a value of $100,000. What income tax planning might the family be intending to achieve by means of this transaction? What if anything, does §1014(e) do to support or thwart their plan?
6. Before his death, Ernst owned an oil painting worth $10,000 for which he had paid $40,000. He gave it to Alexis, his wife, a few years ago. What is her basis in the oil painting? See §1041.
What if Ernst sold the painting to Alexis for $10,000? Can he claim a loss on the sale?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
