Tax Strategies Flashcards

When an heir inherits appreciated stock, the cost basis is generally:

Answer: Stepped up to fair market value at the date of death

Under IRC Section 1014, inherited assets generally get a basis equal to fair market value at death.

A client receives appreciated stock as a lifetime gift and later sells it at a gain. What basis is used?

Answer: The donor's carryover basis

For gains, gifted property keeps the donor's adjusted basis (carryover basis).

What is the primary goal of tax-loss harvesting?

Answer: Realizing losses to offset realized gains and up to $3,000 of ordinary income

Tax-loss harvesting realizes losses to offset gains and lower current taxes while keeping market exposure.

Under a typical asset location strategy, which holding usually belongs in a tax-deferred account?

Answer: High-yield taxable corporate bonds

Investments taxed as ordinary income, like taxable bond interest, gain the most from tax deferral.

When pre-tax traditional IRA assets are converted to a Roth IRA, the converted amount is:

Answer: Taxed as ordinary income in the year of conversion

Pre-tax amounts converted to a Roth are included in ordinary income for the year of conversion.

Under SECURE 2.0, required minimum distributions for IRA owners born between 1951 and 1959 begin at age:

Answer: 73

SECURE 2.0 set the RMD age at 73 for those born 1951-1959, rising to 75 for those born in 1960 or later.

To minimize realized gains when selling part of a position bought at several prices, an investor should use which cost basis method?

Answer: Specific identification of the highest-cost lots

Specific identification lets the investor sell high-basis lots first, which reduces the taxable gain.