- Suppose that Rick dies leaving a taxable estate of $50,000, which consists entirely of a stock portfolio that cost him
$3,000 when he bought the stocks years ago. Suppose that the capital gains tax rate is 18%. As mentioned in this
section, under current law, when you sell inherited property, you pay capital gains tax only on the gain over the value at
death.
a. Suppose that Rick dies in 2007. Calculate the amount of estate tax that would be owed on his estate, and calculate
the capital gains tax that his heirs would have to pay, assuming that they sold these stocks for $52,700.
b. Suppose that the estate tax is abolished altogether, but that when it is, the law is changed so that capital gains tax
would have to be paid on the entire gain in the value of property from the original cost. Calculate the amount of
estate tax that would have been owed on Rick’s estate under this law, and also the capital gains tax his heirs would
have to pay, assuming they sold the stocks for $52,700.
c. In total, how would the overall taxes on this inheritance change?- Suppose that Rick dies, leaving a taxable estate of $5,000,000, which consists entirely of a stock portfolio that cost him
$300,000. Suppose that the capital gains tax rate is 18%. As mentioned in this section, under current law, when you sell
inherited property, you pay capital gains tax only on the gain over the value at death.
a. Suppose that Rick dies in 2007. Calculate the amount of estate tax that would be owed on his estate, and calculate
the capital gains tax that his heirs would have to pay assuming that they sold these stocks for $5,270,000.
b. Suppose that the estate tax is abolished altogether, but that, when it is, the law is changed so that capital gains tax
would have to be paid on the entire gain in the value of property from the original cost. Calculate the amount of
estate tax that would have been owed on Rick’s estate under this law, and also the capital gains tax his heirs would
have to pay, assuming they sold the stocks for $5,270,000.
c. In total, how much would the tax on this inheritance change?414 Chapter 9 Taxes