Upon the death of his Aunt Jannet in December 2019, John, her only recognized heir inherited the following asset:

Land—300 acres

Jannet’s Adjusted Basis: 95,000

FMV at Death: 175,000

No gift taxes were paid. On October 1, 2020, the land was worth $160,000 (FMV). John has one of two options.:

1. He could sell the land to his brother Paul on Oct. 1, 2020 for its FMV, 160,000.
2. On October 1, 2020, John leases the land to his brother Paul for $15,000 annually. Paul prepays the lease payments through December 31, 2020. Thereafter, he would make monthly lease payments at the beginning of each month.

What effect would this have on John’s tax liability? What potential problem might John encounter? Explain to John the tax consequences of leasing vs. selling the land.

Answer rating: 100% (QA)

The tax consequences of leasing vs selling the land would be that if John sold the land he would hav... View the full answer