Marvin is the executor and sole heir of his aunt’s estate

Question:

Marvin is the executor and sole heir of his aunt’s estate. The estate includes her furnished home, which Marvin is considering converting to rental property to generate additional cash flow. What are some of the tax problems Marvin may confront?

Answer:

The tax base is defined as anything on which the taxable amount is calculated such as the tax base of a house. For example, the property tax base of a house is its value. At present, the following are the major types of taxes imposed in a country:

1. Property Taxes: These taxes are also known as ad valorem taxes because they are based on the value of the tax base.

2. Transactions Taxes: These taxes are imposed on wholesalers and retailers wide range of transfers. For example, income tax, excise tax, and estate tax.

3. Employment Taxes: These taxes include the Federal Unemployment tax and Federal Insurance contribution act imposed to provide social security among the citizens of the country.

M is the executor and sole heir of aunt’s estate. In order to convert the resident property into rental property M would face the following tax problems:

1. The change in a rental property may increase the advalorem tax.

2. Change in ownership may unlock the appraised value freeze on property.

3. Tax results may also be diminished by adverse property tax consequences.

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