Susan, mother of Holly and Polly, owned 100 acres of undeveloped land when she d

ID: 2438570 • Letter: S

Question

Susan, mother of Holly and Polly, owned 100 acres of undeveloped land when she died on October 1, 2012. Susan had acquired the land in 1978 for $20,000.Susan’s Will was admitted to probate, and the Will specifically devised the 100 acres of undeveloped land to Susan’s children Holly and Polly, as tenants in common. No estate tax return was required to be filed but several appraisals were acquired which all concluded that the fair market value as of the date of Susan’s death was $300,000. Holly and Polly both survived Susan, and the land was distributed to Holly and Polly in 2013 when the property was still worth $300,000. Holly and Polly did not make any improvements to the land, and in 2018, Polly transferred Polly’s undivided one-half interest as tenant-in-common to Holly. At the date of the transfer to Holly, the fair market value of Polly’s undivided one-half interest as tenant in common was $800,000. After the transfer, how much is Polly’s basis in the 100 acres of undeveloped land?a.300,000 b. 550,000 c.$950,000 d. $325,000

My answer is (b) 550,000. Am I on the correct path? I showed below how I got the answer. If not correct can you explain the error?

FMV300,000 FMV-800,000 HOLLY POLLY 150,000 150,000 FROM POLLY 400,000 BASIS 550,000

Explanation / Answer

Particulars

Amount ($)

FMV of half part (300000 x 1/2)

150,000.00

Add: FMV of 1/2 of Polly's interest in the land

800,000.00

Polly's basis in the land after the transfer

950,000.00

Thus, the correct answer is option C, i.e. $950,000 hence, Polly’s basis in the 100 acres of undivided land is $950,000.