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Accounting, Finance, SPSS
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Case Study
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Topic:
Is the Sale of Inheritable Property by Tom and Joanne Subjected to Capital Gains tax in United States? (Case Study Sample)
Instructions:
TO: FROM: RE: Tom and Joanne (tax year 2015)
Issue Question and Conclusion 1
Is the sale of inheritable property (land) by Tom and Joanne subjected to capital gains tax in United States?
Yes, the Internal Revenue Code (IRC) provides for capital gains tax on the sale of an inherited property.
Analysis 1
The case by Tom and Joanne falls under the tax head of capital gains tax on estate. Capital gains tax (CGT) ideally refers to the tax charged on capital gains, which is the profit derived from the sale of an asset that is not part of an individual or business inventory whose purchase price was lower than the proceeds realized on the sale. Capital gains tax on sale of inherited property is provided in the Internal Revenue Code 2057. According to the IRC 2057 that guides the Ireland Revenue Service in the collection of capital gains on sales and other dispositions of capital assets, the capital gains on individuals and corporate
Content:
TO: FROM: RE: Tom and Joanne (tax year 2015)
Issue Question and Conclusion 1
Is the sale of inheritable property (land) by Tom and Joanne subjected to capital gains tax in United States?
Yes, the Internal Revenue Code (IRC) provides for capital gains tax on the sale of an inherited property.
Analysis 1
The case by Tom and Joanne falls under the tax head of capital gains tax on estate. Capital gains tax (CGT) ideally refers to the tax charged on capital gains, which is the profit derived from the sale of an asset that is not part of an individual or business inventory whose purchase price was lower than the proceeds realized on the sale. Capital gains tax on sale of inherited property is provided in the Internal Revenue Code 2057. According to the IRC 2057 that guides the Ireland Revenue Service in the collection of capital gains on sales and other dispositions of capital assets, the capital gains on individuals and corporate depends significantly on the ordinary income rates and the nature of capital gains (where shorter or long-term).The code states that once a property has been inherited, it should automatically be treated as if it has already been held for more than 1 year. This implies that the sale of an inherited property is often considered as a long-term capital gain, and will have rates that are corresponding to a person’s marginal ordinary income rates. Individuals with an ordinary income bracket of 10% or 15% pays 0% on long-term capital gains while those in the tax bracket of 25%, 28%, 33%, or 35% will pay 15% tax on capital gains. However, individuals who fall in the 39.6% tax bracket pays 20% tax on long-term capital gains.
Issue Question and Conclusion 2
How much income should Tom and Joanne each report in their income tax returns as capital gains from the sale of the inherited property?
Tom and Joanne will report $ 100000 and $ 500000 respectively as capital gains from the sale of land.
Analysis 2
From the case, it is clear that the income of $300,000 from the sale of property by Tom and Joanne clearly relates to a property, which they inherited from their parents: Mr. and Mrs. Smith. The FMV of the property at the time (4 years ago) when Tom and Joanne inherited the property amounted to $ 150000 and $ 25000 for land and house respectively. Internal Revenue Code, a person who inherits a capital asset and sells that property later is subject to capital gains tax on the excess of the proceeds realized from the sale of that property over the FMV of that property when it was inherited.
From the analysis of the case, it is rational to conclude that Tom and Joanne have gained from the sale of the inherited...
Issue Question and Conclusion 1
Is the sale of inheritable property (land) by Tom and Joanne subjected to capital gains tax in United States?
Yes, the Internal Revenue Code (IRC) provides for capital gains tax on the sale of an inherited property.
Analysis 1
The case by Tom and Joanne falls under the tax head of capital gains tax on estate. Capital gains tax (CGT) ideally refers to the tax charged on capital gains, which is the profit derived from the sale of an asset that is not part of an individual or business inventory whose purchase price was lower than the proceeds realized on the sale. Capital gains tax on sale of inherited property is provided in the Internal Revenue Code 2057. According to the IRC 2057 that guides the Ireland Revenue Service in the collection of capital gains on sales and other dispositions of capital assets, the capital gains on individuals and corporate depends significantly on the ordinary income rates and the nature of capital gains (where shorter or long-term).The code states that once a property has been inherited, it should automatically be treated as if it has already been held for more than 1 year. This implies that the sale of an inherited property is often considered as a long-term capital gain, and will have rates that are corresponding to a person’s marginal ordinary income rates. Individuals with an ordinary income bracket of 10% or 15% pays 0% on long-term capital gains while those in the tax bracket of 25%, 28%, 33%, or 35% will pay 15% tax on capital gains. However, individuals who fall in the 39.6% tax bracket pays 20% tax on long-term capital gains.
Issue Question and Conclusion 2
How much income should Tom and Joanne each report in their income tax returns as capital gains from the sale of the inherited property?
Tom and Joanne will report $ 100000 and $ 500000 respectively as capital gains from the sale of land.
Analysis 2
From the case, it is clear that the income of $300,000 from the sale of property by Tom and Joanne clearly relates to a property, which they inherited from their parents: Mr. and Mrs. Smith. The FMV of the property at the time (4 years ago) when Tom and Joanne inherited the property amounted to $ 150000 and $ 25000 for land and house respectively. Internal Revenue Code, a person who inherits a capital asset and sells that property later is subject to capital gains tax on the excess of the proceeds realized from the sale of that property over the FMV of that property when it was inherited.
From the analysis of the case, it is rational to conclude that Tom and Joanne have gained from the sale of the inherited...
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