Unit 12: Gift Tax
All of the following are deductions allowed in determining the gift tax EXCEPT A. The value of any gift made to one's spouse who is not a United States citizen. B. A gift to the state of Pennsylvania for exclusively public purposes. C. A gift of a copyrightable work of art to a qualified organization if the copyright is not transferred to the charity. D. A gift made to one's spouse, a United States citizen, in excess of $152,000.
A. The value of any gift made to one's spouse who is not a United States citizen. Although a full marital deduction is available for a gift to a spouse who is a U.S. citizen, regardless of the citizenship or residence of the donor, the marital deduction for a gift made to a spouse who is not a U.S. citizen is limited to $152,000 for 2018.
Jim has elected to treat transfers (on behalf of his son) made by him during tax year 2018 to a qualified state tuition program as made ratably over 5 years. His total contribution to this plan during 2018 is $75,000. He makes no other transfers during tax year 2018. What amount will be treated as a taxable gift in tax year 2018? A. $15,000 B. $0 C. $55,000 D. $75,000
B. $0 QTP contributions may be treated as made ratably over a 5-year period. Because the apportioned amount is not more than the annual exclusion and no other taxable gifts were made, Jim is not required to file a gift tax return for the year.
Susan gave her niece a classic piano during tax year 2018. She had purchased the piano for $20,000 in 2014. The fair market value at the date of the transfer was $18,000. What amount should be recorded on Form 709 as the value of this gift? A. $3,000 B. $5,000 C. $20,000 D. $18,000
D. $18,000 Regulation 25.2512-1 states that the amount of a gift made in property is the fair market value of the property at the date of the gift. Therefore, the value of the gift is $18,000.
For transfers by gift during the current year, one must file a gift tax return for which of the following? A. A transfer of $22,000 to a son for which one's spouse has agreed to gift splitting. B. A transfer to one's spouse that qualified for the unlimited marital deduction. C. A transfer of a present interest in property that is not more than the annual exclusion. D. A qualified transfer for educational or medical expenses.
A. A transfer of $22,000 to a son for which one's spouse has agreed to gift splitting. Section 6019 provides that a gift tax return must be filed for almost all taxable gifts. Specifically excluded from the requirement for filing are transfers that qualify for and do not exceed the $15,000 annual exclusion of Sec. 2503(b) or the Sec. 2503(e) exclusion for educational or medical expenses (the educational and medical expenses are excluded as "gifts"). Additionally, transfers to a spouse that qualify for the unlimited marital deduction do not require the filing of a gift tax return. However, a gift tax return must be filed for a transfer that exceeds the annual exclusion even if no tax will be paid because the donor's spouse agrees to gift splitting.
Donald is a tax return preparer. His client, Jody Black, told him that she had made several gifts during 2018. She asked whether she should file a gift tax return and, if so, how much tax she would owe. Jody has never given a taxable gift before. Donald reviewed Jody's gift transactions as follows: 1. Paid her parents' medical bills, $15,000 for her father and $10,000 for her mother 2. Bought a sports car for her son at a cost of $39,000 3. Gave $17,000 cash to her church 4. Prepared her will, leaving her vacation cabin, valued at $75,000, to her sister 5. Sent a wedding gift of $1,000 to her niece What is Donald's best answer to Jody's questions? A. Jody must file a gift tax return, but she will not owe tax because of the unified credit. B. No return is due because gifts to family are excluded. C. None of the answers are correct. D. Jody must file a gift tax return and will owe tax on $24,000.
A. Jody must file a gift tax return, but she will not owe tax because of the unified credit. A tax return must be filed if there are any taxable gifts. After the $15,000 exclusion, Jody will have a taxable gift of $24,000 to her son. For gifts made in 2018, the applicable credit amount is $4,417,800, reduced by the amount allowable as an applicable credit amount for all preceding calendar years [Sec. 2505(a)].
Which of the following statements is true in respect to determining the amount of net gift tax? A. The applicable credit amount claimed may not exceed the tax for the calendar year. B. The annual exclusion is limited to a total of $15,000 per year per donor. C. There is a one-time marital deduction of $600,000. D. The applicable credit amount may be used to reduce up to $4,417,800 of gift tax liability per year.
A. The applicable credit amount claimed may not exceed the tax for the calendar year. The applicable credit amount available to offset tax due on the current year's gifts is equal to the statutory credit for the current year reduced by the sum of the amounts allowable as a credit to the individual for all preceding calendar years [Sec. 2505(a)]. The credit may not exceed the tax for the calendar year. For 2018, the statutory credit is $4,417,800.
During the current year, Nancy, who is single, made the following gifts: -Paid $16,000 in medical bills for her friend. The payments were paid directly to her friend's doctor. -Gave $18,000 to her mother to help her with rent and groceries. -Gave $23,000 to her nephew Tom to get him started in business. -Also made a $50,000 interest-free demand loan to her nephew James last year. The loan is still outstanding at the end of the current year. The applicable federal interest rate during the current year remained constant at 10%. What is the amount of Nancy's taxable gifts in the current year? A. $15,000 B. $11,000 C. $8,000 D. $9,000
B. $11,000 Under Sec. 2503, gifts are taxable to the extent that they exceed $15,000 unless they are made on behalf of any individual as tuition to an educational organization or as payment to someone who provides medical care to such individual. The payment must be made directly to the educational organization or person providing medical care. The $16,000 Nancy paid directly to her friend's doctor is not a taxable gift (it is not considered a "gift"). The gifts to her mother and to her nephew Tom are each taxable to the extent that they exceed the $15,000 exclusion of Sec. 2503(b). An interest-free loan generally results in a deemed transfer of interest between the borrower and the lender [Sec. 7872(a)]. The lender is deemed to have made a gift of the forgone interest to the borrower. The amount of Nancy's gift to her nephew James is deemed to be $5,000. Because the amount of deemed interest is less than the $15,000 exclusion, it is not a taxable gift.
During 2018, Wellington made the following gifts: -$40,000 cash to son Willis -Land worth $100,000 to wife Paula -A $16,000 painting to niece Marlene Wellington and Paula elect gift splitting. Paula's only gift in 2018 was a $50,000 cash gift to her mother. What is the amount of the taxable gifts to be reported by Wellington in 2018? A. $53,000 B. $15,000 C. $206,000 D. $153,000
B. $15,000 Answer B is correct. Gift splitting allows spouses to treat each gift as made one-half by each. This allows each spouse to exclude the first $15,000 of each gift of a present interest to a third person in a calendar year, for a total exclusion of $30,000 per donee. The land that Wellington gave to his wife qualifies for the unlimited marital deduction and is not included as a taxable gift. Thus, Wellington's taxable gift amount is $15,000. Gift Amount/Exclusion/Taxable Gift Son: $ 20,000/$ (15,000)/$ 5,000 Wife: 100,000/(100,000)/0 Niece:8,000/(8,000)/0 Paula's mother:25,000/(15,000)/10,000 Total:$153,000/$(138,000)/$15,000
Which of the following statements regarding the annual exclusion for gift taxes is true? A. None of the answers are correct. B. A gift of a future interest cannot be excluded under the annual exclusion. C. The gift of a present interest to more than one donee as joint tenants qualifies for only one annual exclusion. D. The annual exclusion amount for 2018 is $16,000.
B. A gift of a future interest cannot be excluded under the annual exclusion. The first $15,000 of gifts of present interest to each donee is excluded from taxable gift amounts. The $15,000 exclusion applies only to gifts of present interests.
In the current year, Blum, who is single, gave an outright gift of $50,000 to a friend, Gould, who needed the money to pay medical expenses. In filing the current-year gift tax return, Blum was entitled to a maximum exclusion of A. $50,000 B. $14,000 C. $15,000 D. $0
C. $15,000 The first $15,000 of gifts of present interest to each donee is excluded [Sec. 2503(b)]. Additionally, an unlimited exclusion is available for amounts paid on behalf of the donee for medical care [Sec. 2503(e)]. However, the transfer for medical care must be made directly to the person who provides it (not the donee). Therefore, this exclusion is not available for Blum. Blum's maximum exclusion is the $15,000 per donee per year.
Lace gave the following gifts during the year: -$8,000 in cash to her sister -$17,000 in stocks to her brother -$17,000 in cash to United Way -A car to her cousin worth $21,000 Based on this information, what is the amount of taxable gifts given? A. $4,000 B. $15,000 C. $8,000 D. $0
C. $8,000 Instructions for Form 709 state, "The first $15,000 of gifts of present interests to each donee during the calendar year is subtracted from total gifts in figuring the amount of taxable gifts." In addition, "If the only gifts you made during the year are deductible as gifts to charities, you do not need to file a return as long as you transferred your entire interest in the property to qualifying charities." Lace's taxable gifts of $8,000 include $2,000 ($17,000 gift - $15,000 exclusion) from the stocks given to her brother, and $6,000 ($21,000 - $15,000 exclusion) from the car given to her cousin.
Mr. Fred Wall bought a house that cost $50,000 for an unrelated friend, Gloria Wilson, in 2018. Mrs. Wall made no gifts in 2018. In filing their gift tax returns for 2018, Mr. and Mrs. Wall should file Form 709, United States Gift Tax Return, as follows: A. File two gift tax returns, one for Mr. Wall and one for Mrs. Wall, with each spouse signing the consent section of the other's gift tax return signifying that the spouse agrees to treat all gifts as made one-half by each spouse. A $15,000 annual exclusion may be taken on each return. B. Mr. Wall should file a gift tax return reporting the $50,000 gift and taking a $15,000 annual exclusion. C. Either Mr. Wall should file a gift tax return reporting the $50,000 gift and taking a $15,000 annual exclusion or Mr. and Mrs. Wall should file two gift tax returns, one for Mr. Wall and one for Mrs. Wall, with each spouse signing the consent section of the other's gift tax return signifying that the spouse agrees to treat all gifts as made one-half by each spouse. A $15,000 annual exclusion may be taken on each return. D. File one joint gift tax return reporting the $50,000 gift and taking a $15,000 annual exclusion for each spouse, or a $30,000 exclusion.
C. Either Mr. Wall should file a gift tax return reporting the $50,000 gift and taking a $15,000 annual exclusion or Mr. and Mrs. Wall should file two gift tax returns, one for Mr. Wall and one for Mrs. Wall, with each spouse signing the consent section of the other's gift tax return signifying that the spouse agrees to treat all gifts as made one-half by each spouse. A $15,000 annual exclusion may be taken on each return. A gift tax return must be filed for a transfer that exceeds the annual exclusion. Fred may either report the entire gift on his gift tax return and take the $15,000 exclusion or elect to split the gift between his wife and himself. Gift splitting allows spouses to treat each gift as made one-half by each. This allows each spouse to exclude the first $15,000 of each gift of a present interest to a third person in a calendar year, for a total exclusion of $30,000 per donee. Gift splitting is not available to a couple if they legally divorce after the gift and one of the spouses remarries before the end of the calendar year.
John and Mary were married on July 1, 2018. During 2018, John gave the following gifts: -2/21/18 - $10,000 worth of ABC Corp. stock to John's son David -4/20/18 - $30,000 worth of vacant land to John's daughter Susan -10/31/18 - $100,000 cash to Mary -11/18/18 - $20,000 worth of XYZ Corp. stock to John's son David Mary did not make any gifts during 2018. John and Mary agreed to split gifts for 2018. What is the amount of gifts that can be split between John and Mary in 2018? A. $60,000 B. $160,000 C. None of the answers are correct. D. $20,000
D. $20,000 If both spouses consent, a gift made by one spouse to any person other than the other spouse is considered as made one-half by each spouse (Sec. 2513). However, only gifts that were made while the couple were actually married at the time of the gift qualify for gift splitting. Because John and Mary were not married until July 1 and the transfer to Mary qualifies as an unlimited marital deduction, only the $20,000 gift to David may be split.
Tom, who is married, gave a vase worth $40,000 to his sister, Julie. Tom's basis in the vase is $10,000. What amount will Tom report as the value of the gift on Form 709? A. $20,000 B. $10,000 C. $30,000 D. $40,000
D. $40,000 The amount of a gift is the fair market value of what was given. In this situation, the fair market value is $40,000, which is what Tom will report as the value of the gift on Form 709.
Jack, a single individual, made the following gifts in 2018: Payment directly to sister's qualifying college for tuition: $20,000 Payment directly to sister's qualifying college for room and board: $25,000 Cash to nephew: $10,000 Cash to brother: $30,000 What is the gross amount of gifts that Jack must include on his 2018 Form 709, United States Gift Tax Return? A. $65,000 B. $40,000 C. $85,000 D. $55,000
D. $55,000 Section 6019 provides that a gift tax return must be filed for almost all taxable gifts. Specifically excluded from the requirement for filing are transfers that qualify for and do not exceed the $15,000 annual exclusion of Sec. 2503(b). The payment to Jack's sister's college for tuition is not included (this is not considered a "gift"). The amount given for room and board is included, however. The cash payment made to the nephew is excluded due to the $15,000 annual exclusion. The total amount included is $55,000 ($25,000 room and board + $30,000 cash to brother).
During 2018, Sadie made the following transfers: -She deeded her personal residence to her daughter and herself to be held in joint tenancy. The fair market value of the residence at the time of transfer was $150,000. -She placed a $30,000 bank account in joint tenancy with her daughter. Neither she nor her daughter made any withdrawals in 2018. -She placed a $20,000 bank account in joint tenancy with her daughter. During 2018, Sadie withdrew $2,000, and her daughter withdrew $5,000 from the account. -She bought $10,000 in U.S. savings bonds registered as payable to herself or her daughter. Neither she nor her daughter cashed any of the bonds during 2018. What is the gross amount of gifts given by Sadie in 2018? A. $90,000 B. $105,000 C. $5,000 D. $80,000
D. $80,000 If a donor buys property with his or her own funds and the title to such property is held by the donor and the donee as joint tenants with right of survivorship and, if either the donor or the donee may give up those rights by severing his or her interest, the donor has made a gift to the donee in the amount of half the value of the property. If the donor creates a joint bank account for himself or herself and the donee [or a similar kind of ownership by which (s)he can get back the entire fund without the donee's consent], the donor has made a gift to the donee when the donee draws on the account for his or her own benefit. The amount of the gift is the amount that the donee took out without any obligation to repay the donor. If the donor buys a U.S. savings bond registered as payable to himself or herself or the donee, there is a gift to the donee when (s)he cashes the bond without any obligation to account to the donor. Therefore, Sadie's gross amount of gifts given is $80,000 ($75,000 for the house + $5,000 for the amount withdrawn).
Which of the following scenarios is correct for splitting gifts during the same year? A. Generally, a couple may elect to split a gift for a relative and elect to not split a second gift to a friend. B. The spouse who did not donate the gift is not liable for tax due on any gift amount in excess of the exclusions. C. Generally, a couple may elect to split a gift for a friend and elect to not split a second gift to a relative. D. Both spouses are jointly and severally liable for tax due on any gift amount in excess of the exclusions.
D. Both spouses are jointly and severally liable for tax due on any gift amount in excess of the exclusions. If taxpayers elect to split gifts, all gifts made by both spouses to third-party donees must be split. The only exception to this general rule is if a taxpayer gives the spouse a general power of appointment over a gift the taxpayer made. It does not matter if the donees are related to the donor. If spouses elect to split gifts, both spouses are jointly and severally liable for any tax created by the consent to gift splitting.
George and Helen are husband and wife. During 2018, George gave $36,000 to his brother and Helen gave $30,000 to her niece. George and Helen both agree to split the gifts they made during the year. What is the taxable amount of gifts, after the annual exclusion, each must report on Form 709? A. George has a taxable gift of $21,000 and Helen has a taxable gift of $15,000. B. George and Helen each have taxable gifts of $19,000. C. George has a taxable gift of $6,000 and Helen has a taxable gift of zero. D. George and Helen each have taxable gifts of $3,000.
D. George and Helen each have taxable gifts of $3,000. Gift splitting allows spouses to treat each gift as made one-half by each. This allows each spouse to exclude the first $15,000 of each gift of a present interest to a third person in a calendar year, for a total exclusion of $30,000 per donee. The $36,000 gift to George's brother is treated as half given by George, the other half given by Helen. The same rule applies for the gift to Helen's niece. Since half of the gift to Helen's niece is $15,000, the annual exclusion applies and neither George nor Helen must report the gift to the niece. George and Helen, for tax purposes, are considered to have given $18,000 each to George's brother. This amount is reduced by the $15,000 annual exclusion. Thus, George and Helen each have taxable gifts of $3,000.
For calendar year 2018, if a gift tax return is required to be filed and the donor is not deceased, what is the due date of the return excluding extensions? A. Within 180 days of making the gift. B. Within 75 days of making the gift. C. On or before December 31, 2018. D. No earlier than January 1, 2019, and no later than April 15, 2019.
D. No earlier than January 1, 2019, and no later than April 15, 2019. Form 709 must generally be filed for the year 2018 after January 1, but not later than April 15, 2019.
Cassy, a single individual, has not been required to file a gift tax return in any prior year. In 2018, Cassy paid $16,000 tuition directly to State University for her sister, Andrea. She gave her brother $10,000 to pay medical bills for his daughter. She also donated $20,000 to the United Way. Must Cassy file a gift tax return? A. Yes, because the total gifts she gave during the year exceeded $15,000. B. Yes, because the gift to her sister exceeded $15,000. C. Yes, because the United Way donation exceeded $15,000. D. No.
D. No. Publication 950 states, "The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts: Gifts . . . that are not more than the annual exclusion for the calendar year, Tuition or medical expenses paid . . . for someone else . . . , Gifts to charities." According to the instructions on Form 709, a gift tax return is not required if all the gifts are fully excluded under the $15,000 annual exclusion. A gift tax return is not required for a gift to charity if it is fully deductible and the entire interest in the property is transferred to the qualified charity. Qualified tuition/medical costs and political contributions are not "gifts."