What is Mary's basis in the inherited diamond ring?

In the context of inherited property, the basis of the property is generally determined by the fair market value (FMV) of the property at the date of death of the decedent. This means that the basis of the inherited property is "stepped up" (or potentially "stepped down" if the FMV is lower) to the value it had at that time, rather than what the decedent originally paid for it.

In this scenario, if Mary's basis in the inherited diamond ring is determined to be $18,000, that suggests this was the fair market value of the ring at the date of the decedent's death. Under these tax rules, this step-up in basis can provide significant tax benefits when Mary eventually sells the ring, as her capital gains tax liability would be calculated based on the difference between the sale price and this basis of $18,000, rather than any potentially lower original purchase price paid by the decedent.

Thus, the correct answer reflecting Mary's basis in the inherited diamond ring is indeed $18,000, as it accurately represents the fair value at the time she acquired it through inheritance.