Ed and Cheryl Have Been Married for 27 Years

question 140

Essay

Ed and Cheryl have been married for 27 years. They own land jointly with a basis of $300,000. Ed dies in 2017, when the fair market value of the land is $500,000. Under the joint ownership arrangement, the land passed to Cheryl.
a.If Ed and Cheryl reside in a community property state, what is Cheryl's basis in the land?
b.If Ed and Cheryl reside in a common law state, what is Cheryl's basis in the land?

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Definitions:

Reinvestment Assumption

An assumption in finance that future cash flows from an investment will be reinvested at a constant rate.

Payback Period

The length of time it takes for an investment to generate cash flows sufficient to recover its initial cost, often used to evaluate the profitability of an investment.

Time Value

The concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

Payback Period

The length of time required for an investment to recover its initial outlay in terms of profits or savings.