Faith Inherits an Undivided Interest in a Parcel of Land

question 70

Essay

Faith inherits an undivided interest in a parcel of land from her father on February 15,2014.Her father purchased the land on August 25,1987 and his basis for the land was $325,000.The fair market value of the land is $12,500,000 on the date of her father's death and is $11,000,000 six months later.The executor elects the alternate valuation date.Faith has nine brothers and sisters and each inherited a one-tenth interest.
a.What is Faith's adjusted basis for her one­tenth undivided interest in the land?
b.What is her holding period for the land?

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Definitions:

Fixed Overhead Volume Variances

The difference between the budgeted and actual fixed overhead costs, attributed to changes in production volume.

Flexible Budget

A budget that adjusts or varies with changes in volume or activity levels.

Overhead Costs

Costs that are not directly related to the creation of products or services, including rent, utilities, and salaries for administrative staff.

Production Capacity

The maximum output that a manufacturing or production facility can achieve within a given period under normal working conditions.