Question

Sam and Cheryl, husband and wife, own property jointly. The property has an adjusted basis of $400,000 and a fair market value of $500,000.

a. Discuss the rules for the calculation of the adjusted basis of the property to Sam if he inherits his wife's share of the property, and Sam and Cheryl live in a community property state.
b. If they live in a common law state?

A) In a community property state, Sam's adjusted basis is adjusted to the fair market value of the entire property upon Cheryl's death.
B) In a community property state, Sam's adjusted basis remains unchanged after Cheryl's death.
C) In a common law state, Sam's adjusted basis is adjusted to the fair market value of the entire property upon Cheryl's death.
D) In a common law state, Sam's adjusted basis remains unchanged after Cheryl's death

Answer 1

In a community property state, Sam's adjusted basis is adjusted to the fair market value of the entire property upon Cheryl's death. In a common law state, Sam's adjusted basis remains unchanged after Cheryl's death.

Step-by-step explanation:

In a community property state, Sam's adjusted basis is adjusted to the fair market value of the entire property upon Cheryl's death. This means that if Cheryl dies and Sam inherits her share of the property, his adjusted basis will be equal to the fair market value of the property at that time. In this case, since the fair market value is $500,000, Sam's adjusted basis would also be $500,000.

In a common law state, Sam's adjusted basis remains unchanged after Cheryl's death. This means that even if Cheryl dies and Sam inherits her share of the property, his adjusted basis will still be $400,000, the original adjusted basis of the property.