5-1 Discussion- tax talk (CH)
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Read the scenario and respond to the prompts. Create one initial post and respond to at least two of your classmates.
A real estate broker in California was gifted a piece of artwork from his uncle. The uncle purchased the artwork 12 years ago for $600,000. The uncle passed away 18 months after gifting the art. The fair market value (FMV) of the artwork on the date
of the uncle's death was $1,200,000. The artwork is more valuable then sentimental to the taxpayer, so the taxpayer sold the art for $1,300,000 seven months after his uncle's death. The taxpayer read that gifts are not taxable to the recipient and therefore the taxpayer doesn't expect to pay tax
on the $1,300,000 of proceeds.
For your initial post, address the following:
1. What income tax consequences will the taxpayer have, including the amount taxable, the character of any taxable amount, and any applicable tax rates?
2. What is inaccurate in the taxpayer's understanding of the
taxability of gifts?
3. Do you think the uncle should have included the artwork in his estate instead of gifting the artwork? Why or why not?
1. How does this relate to the difference between capital assets and other assets?
For your response posts, address the following:
1. Do you agree or disagree with your peer's explanation about tax consequences? Why or why not?
2. Besides the inaccuracy (or inaccuracies) your peer mentioned, what other issues should be addressed with the taxpayer?
3. Respond to a peer who has a different opinion than you do about whether the uncle should have included the artwork in his estate instead of gifting the artwork. How could you help your peer better understand your point of
view? Support your initial posts and response posts with primary sources.
Hi Class,
1. The income tax consequence is that the taxpayer would have to take his uncle’s FMV of the artwork that he purchased 12 years ago for $600,000. The reason is the “property basis received as a gift is generally the same as the donor’s basis” (Rupert, Anderson, Hulse & Franklin,
2023, para 5, pg. 5-7). Since the real estate broker has the FMV of his uncles which is $600,000 and subsequently sold it the art for $1,300,000. He would have a gain on the selling of the art for $700,000. Since he had the art for 18 months before selling it, the art would be considered a long-term capital asset. The tax rate on long term capital gain would be 0%, 15% or 20% (Rupert, Anderson, Hulse & Franklin, 2023). This all depends on the nephew’s tax rate on which rate he would
have to pay tax on the long-term capital gain.
2. The inaccurate understanding of the taxpayer taxability of the gift is that, since they received the artwork as a gift that and gifts are not taxable to the recipient. This statement is true. The donee does not pay tax on the gift, the donor would pay tax on the gift if it exceeds the annual allowable amount of $16,000 for 2022 and is under the lifetime exclusion of $12.06 million. The nephew would pay taxes on the capital gain from the sale
of the artwork but at capital gain rates depending on the nephew’s regular tax rate.
3. I believe that the uncle should have included the artwork in the estate before gifting the artwork to his nephew. This would change the value that the nephew would have
to use as his basis within the artwork. As stated in the first question the basis the nephew would have to take is the basis of his uncle which is $600,000 as his basis and
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