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Scenario $3$: Estate Planning Gone Wrong

Michael's grandfather passed away, leaving him a complex mix of assets:

Traditional IRA valued at $$500,000($Michael is the beneficiary$)$

Roth IRA valued at $$200,000$

Investment Portfolio valued at $$800,000$ with a stepped$-$up basis

A rental property valued at $$400,000$ that generated significant depreciation recapture.

Michael also has a large NOL carryforward of $$50,000.$

Other income:

Wages: $$100,000$

Interest and Dividend Income: $$3,000$

Itemized Deductions: $$32,000$

Allowable deduction for self$-$employment tax: None.

Questions

Discuss the tax implications of inheriting each type of asset.

How will the NOL carryforward interact with the income generated from the estate?

Are there any estate taxes to consider?

Analyze the strategies Michael could use to minimize the tax burden.