Jamie Is Terminally Ill and Does Not Expect to Live

question 108

Essay

Jamie is terminally ill and does not expect to live much longer. Pondering the consequences of her estate, she decides how to allocate her property to her nephews. She makes a gift of depreciated property (i.e., adjusted basis exceeds fair market value) to Will, a gift of appreciated property (i.e., fair market value exceeds adjusted basis) to Jim, and leaves appreciated property to Sam in her will. Each of the properties has the same fair market value. From an income tax perspective, which nephew is her favorite?

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Definitions:

Pretax Return

The income generated by an entity before the deduction of taxes.

Internal Rate of Return

A measure of an investment's rate of return. It is the discount rate that makes the net present value of all cash flows from a particular project equal to zero.

Cash Inflow

Cash inflow, mentioned again, refers to the inflow of funds into a business from various activities, highlighting its importance in assessing a company’s financial health.

Cash Operating Costs

Expenses related to the day-to-day operational activities of a business, paid in cash.