Estate Planning Chapter 5
Celeste and Raymond have been married for 29 years. Last year, Raymond sold his extremely successful automotive repair shop and his net worth now exceeds $40 million dollars. Celeste and Raymond have twin daughters, Kelly and Shelly, who will be 35 next month. Celeste and Raymond, neither of whom have given any gifts in the past, would like to give their daughters the maximum amount of cash possible without paying any gift tax. How much can Celeste and Raymond give to Kelly and Shelly during 2018? A) $30,000. B) $4,417,800. C) $11,180,000. D) $22,420,000.
$22,420,000. Rationale $30,000 (for 2018) per child (annual exclusion for both parents) = $60,000 $11,180,000 (for 2018) per parent (applicable gift tax credit equivalency) = $22,360,000 Total that can be gifted without paying gift tax $22,420,000
Grandmother Jones contributed $2,500,000 to a revocable trust. She has a life expectancy of 24 years and she will receive an 8% per year annuity from the trust. At her death, the corpus will be paid to her granddaughter, Lisa. What is Grandmother Jones's taxable gift? A) $0. B) $2,094,752. C) $2,489,000. D) $2,500,000.
A) $0. Rationale Because Grandmother Jones reserves the right to revoke the trust, she has not made a completed transfer to Lisa and thus she does not have a taxable gift.
In the current year, Jerry loaned his daughter, Charisse, $15,000 to purchase a new car. The loan was payable on demand, but there was no stated interest rate. The applicable federal rate for the current year was 10%, and Charisse had $900 of net investment income for the year. For gift tax purposes with regards to this loan, how much has Jerry gifted Charisse during the current year? A) $0. B) $900. C) $1,500. D) $15,000.
A) $0. Rationale Because the loan is for less than $100,000 and Charisse has less than $1,000 in net investment income, Jerry does not have to impute any interest on the loan and, as such, has not made a gift of interest to Charisse during the current year.
Jason and his wife, Maria, live in Texas with their two minor children. All of their property is owned as community property. During the year, Jason gave his brother a $13,000 car, his friend a $4,000 watch, and his dad a $45,000 fishing boat. What is the total amount of split gifts? A) $0. B) $16,000. C) $31,000. D) $62,000.
A) $0. Rationale Because the question asked the amount of gifts attributable to Maria due to gift splitting, the answer is $0. Community property assets are not eligible for gift splitting because they are viewed as being owned one-half by each spouse. $31,000 (1/2 of the total of the all gifts during the year) would be attributable to Maria as gifts made by her during the year. If the question asked for the total amount of taxable gifts, the answer would change to $45,000 - $28,000 = $17,000.
During 2018, Janice made the following transfers. What is the amount of her total taxable gifts for 2018? 1. Janice gave $10,000 to her boyfriend so he could buy a new car. 2. Janice's neighbor Judy needed $15,000 to pay for her knee surgery. Janice paid Doctors-R-Us Hospital directly. 3. Her nephew began attending Georgetown Law School this year. Janice made the initial yearly tuition payment of $25,000 directly to Georgetown Law School during 2018. A) $0. B) $15,000. C) $25,000. D) $50,000.
A) $0. Rationale Statement 1 is the only gift subject to gift tax, but to arrive at the total taxable gifts for the year the value of the gross gift is reduced by the available annual exclusion. In this case, Janice's gift to her boyfriend would be eliminated after the application of the $15,000 for 2018 annual exclusion. Statements 2 and 3 are transfers not subject to gift tax because they are qualified transfers paid directly to a medical or educational institution.
Celeste made the following transfers during this year: 1. Her friend, Paul, needed $25,000 to begin law school. Celeste gave Paul the cash. 2. An alimony payment of $15,000 to her ex-husband. 3. She paid $15,000 to Diamond Shores Hospital for her friend Jackie's medical bills. What is the amount of Celeste's taxable gifts? A) $10,000. B) $15,000. C) $40,000. D) $55,000.
A) $10,000. Rationale 1. The payment to Paul is for his tuition, but to be a qualified transfer $10,000 the payment must be made directly to the educational institution. The payment is therefore a gift of $25,000 which will be reduced by the available $15,000 annual exclusion (2018). 2. Alimony payments are deductible for income tax purposes by the $0 payor, and included in the recipient's taxable income. Alimony payments are not taxable gifts. 3. A payment directly to a medical institution for the medical treatment $0 of anyone is a qualified transfer not subject to gift taxes. Taxable Gift $10,000
During the year, Sean made the following gifts to his daughter: 1. An interest-free loan of $6,000 to purchase an SUV. The applicable federal rate was 6%. The loan has been outstanding for two years. 2. A corporate bond with an adjusted basis of $15,000 and a fair market value of $16,000. 3. A portfolio of stock with an adjusted basis of $10,000 and a fair market value of $25,000. Sean's wife agrees to elect gift-splitting for the year, but she did not make any gifts of her own. What is the amount of total taxable gifts made by Sean during the year? A) $5,500. B) $7,500. C) $7,680. D) $20,680.
A) $5,500. Rationale The interest-free loan is not subject to gift tax because the loan is below $10,000 and meets the exclusion from imputed interest rules. To calculate Sean's taxable gifts, first add the fair market value of the transfers subject to gift tax and reduce by the annual exclusions and the gift-splitting. The calculation is as follows: Sum of the fair market values of the taxable transfers: $25,000 + $16,000 = $41,000. Allocation for gift splitting: $41,000/2 = $20,500. Reduction for annual exclusion: $20,500 - $15,000 = $5,500.
What is the meaning of the phrase "taxable gifts?" A) A gift exclusive of any annual exclusion. B) The gross amount of gift given to any donee. C) The amount of any gift exceeding the lifetime exemption which is then subject to gift tax. D) The amount of any gift that exceeds both the annual exclusion and the lifetime exemption, which is then subject to gift tax.
A) A gift exclusive of any annual exclusion. Rationale The term or phrase "taxable gifts" means net of any annual exclusion but before the application of the lifetime exemption.
Which of the following gifts removes the property from the donor's gross estate? A) An outright gift. B) A gift where the donor has a right to continue to use and enjoy the property. C) A gift where the donor owner continues to earn income from the property. D) A gift where the donor owner has the right to get the property back at some point in the future.
A) An outright gift.
Stephanie received 100 shares of ZYX Corporation from her aunt with an adjusted basis of $60,000 and a fair market value of $30,000 as of the date of the gift. Her Aunt paid $1,500 of gift tax. Stephanie sold the stock for $45,000. What is Stephanie's recognized gain or loss? A) No gain or loss. B) $15,000 gain. C) $15,000 loss. D) $13,500 loss.
A) No gain or loss. Rationale When the fair market value of gifted property is less than the donor's adjusted basis, gift tax on the appreciation is not added to the basis, and the double-basis rule applies. In such a case, the gain basis for the property is the donor's adjusted basis, and the loss basis is the fair market value at the date of the gift. When the sale is between these amounts, there is not a gain or loss. In this case, Stephanie sold the stock for an amount between the gain and loss basis and therefore has no gain or loss.
Deborah provides the following list to her CPA who is preparing her gift tax return. Which of the following will Deborah's CPA include as a taxable gift on Deborah's gift tax return? A) Payment to grandmother of $20,000 to help her with her medical bills. B) Payment to Doctor's Hospital for $35,000 to cover the medical bills of a friend. C) Payment to Northshore Medical School for $17,000 to cover nephew's tuition. D) Payment for a child of $6,000 that represents legal support.
A) Payment to grandmother of $20,000 to help her with her medical bills. Rationale Deborah's CPA will include the payment made to Deborah's grandmother as a taxable gift. A payment must be paid directly to the health care provider or educational institution to be a qualified transfer. Options b and c represent qualified transfers and are not taxable gifts. Option d is a payment of legal support and is not considered a gift for gift tax purposes.
Identify transfers that are included when determining taxable gifts. A) You cancelled a $1,000 debt from your brother. B) You made a promise to your daughter to give her a car when she graduates from college. C) You added your son's name to your checking account Incorrect Response D) You established a revocable trust and named your spouse as beneficiary.
A) You cancelled a $1,000 debt from your brother.
Timothy made the following transfers to his only daughter during the year: 1. A bond portfolio with an adjusted basis of $130,000 and a fair market value of $140,000. 2. 2,000 shares of RCM Corporation stock with an adjusted basis of $126,000 and a fair market value of $343,000. 3. An auto with an adjusted basis of $15,000 and a fair market value of $9,000. 4. An interest-free loan of $2,000 for a personal computer on January 1st. The applicable federal rate for the tax year was 8%. What is the value of Timothy's gross gifts for the year? A) $271,000. B) $492,000. C) $494,000. D) $498,000.
B) $492,000.
Timothy made the following transfers to his only daughter during the year: 1. A bond portfolio with an adjusted basis of $130,000 and a fair market value of $140,000. 2. 2,000 shares of RCM Corporation stock with an adjusted basis of $126,000 and a fair market value of $343,000. 3. An automobile with an adjusted basis of $15,000 and a fair market value of $9,000. 4. An interest-free loan of $2,000 for a personal computer on January 1st. The applicable federal rate for the tax year was 8%. What is the value of Timothy's gross gifts for this year? A) $271,000. B) $492,000. C) $494,000. D) $498,000.
B) $492,000. Rationale The total of gross gifts is the fair market value of all gifted property before any deductions for gift-splitting, the marital deduction, or the annual exclusion. Because the loan in statement 4 is less than $10,000, it meets one of the exceptions of the imputed interest rules. The fact that the basis in Statement 3 is higher than the FMV is ignored for purposes of calculating the total gross gifts. The double-basis rule will apply to the donee in a subsequent sale. $140,000 + 343,000 + 9,000 = $492,000.
Donna and Daniel have lived in Louisiana their entire marriage. Currently, their combined net worth is $4,000,000 and all of their assets are community property. After meeting with their financial advisor, Donna and Daniel begin a plan of lifetime gifting to reduce their gross estates. During 2018, they made the following cash gifts: Son $80,000 Daughter $160,000 Republican National Committee $75,000 Granddaughter $15,000 What is the amount of the taxable gifts to be reported by Donna? A) $35,500. B) $90,000. C) $127,500. D) $255,000.
B) $90,000. Rationale Because the assets are community property, the gifts are deemed to be made 50% by each spouse. Gift-splitting is not an issue. The cash payment to the Republican National Committee is not a gift for gift tax purposes. Donna's taxable gifts are calculated as follows: Donna's Donna's Donna's Total Gifts Annual Taxable (1/2) Exclusion Gifts Son $40,000 $15,000 $25,000 Daughter $80,000 $15,000 $65,000 Granddaughter$7,500 $7,500 - 0 - Total $127,500 $37,500 $90,000
Brent and his wife live in a common law (separate property) state. Each year, Brent makes gifts equal to the annual exclusion to his three children. During the year, he comes to you looking for a way to transfer more than $75,000 each year to his kids without using his applicable gift tax credit or paying any gift tax. All of the following statements regarding gift-splitting, are true, except: A) If Brent's wife would agree to elect gift splitting, Brent could transfer $90,000 per year to his kids without utilizing his applicable gift tax credit or paying any gift tax. B) Even if Brent's wife elected to split gifts, only Brent's gifts would be split. C) Even though all of the gifts are less than the annual exclusion, and not taxable, Brent will have to file a gift tax return if his wife agrees to gift split. D) If a couple elects to split gifts, all gifts made during the year (while the couple is married) by either spouse must be split.
B) Even if Brent's wife elected to split gifts, only Brent's gifts would be split. Rationale The question asks which statement is not true regarding gift-splitting. Option b is incorrect because a couple that elects to split gifts must split all gifts made during the year. All of the other options are correct statements.
Pedro has begun a program of lifetime gifting. All of the following statements regarding lifetime gifts are true, except? A) Appreciation on property after the date of the gift will not be subject to gift tax and will not be included in the donor's gross estate. B) Payments directly to his grandchildren for their education over the annual exclusion amount will not be taxable. C) Annual exclusion gifts will not be subject to the gift tax and will not be included in the donor's gross estate. D) The donee of income producing property will have to recognize the post-gift income from the property on the donee's income tax return.
B) Payments directly to his grandchildren for their education over the annual exclusion amount will not be taxable. Rationale Only option b is false. Payments to Pedro's grandchildren for education will be taxable because they were not made directly to the institution and thus are not qualified transfers. All of the other statements are true.
Which of the following transfers would not be considered a qualified transfer? A) Sarah paid $55,000 to XYZ University for her niece's tuition. B) Sarah paid $50,000 to her friend Satchel for his medical expenses. C) Sarah paid $10,000 to ABC Hospital for her granddaughter's medical expenses. D) Sarah paid $15,000 to Prestigious Preparatory School for her nephew's tuition.
B) Sarah paid $50,000 to her friend Satchel for his medical expenses.
Wendy is a very generous single woman. Prior to this year, she had given $11,400,000 in taxable gifts over the years. This year, Wendy gave her daughter, Rachel, $500,000 and promptly filed a gift tax return. Wendy did not make any other gifts this year. How much gift tax must Wendy pay the IRS because of this transaction? A) $0 B) $15,000 C) $194,000 D) $200,000
C) $194,000
Jack gave his nephew, Stephen, 1,000 shares of ABC Corporation. Jack had an adjusted basis of $10,000 for all 1,000 shares and the fair market value at the date of the gift was $45,000. Jack paid gift tax of $9,000 on the gift to Stephen. If Stephen sells the stock three days after receiving the gift for $46,000, what is his capital gain/loss? (Assume Jack had already made transfers to Stephen during the year to utilize the annual exclusion.) A) No gain or loss. B) $1,000 gain. C) $29,000 gain. D) $36,000 gain.
C) $29,000 gain. Rationale First calculate Stephen's adjusted basis at the time of the sale. When the fair market value of gifted property is greater than the donor's adjusted basis, the donee's adjusted basis in the gifted property is equal to the donor's adjusted basis, $10,000, plus an allocation of gift tax paid on the appreciation of the property, [($35,000/$45,000) x $9,000] = $7,000. Accordingly, Stephen's adjusted basis is equal to $17,000 ($10,000 + $7,000). To calculate Stephen's gain or loss on the sale of the gifted property subtract his adjusted basis from the proceeds of the sale. $46,000 - $17,000 = $29,000.
Benson has three children (1 - 3) and 6 grandchildren (4 - 9). His wife, Adele, is his second wife and she has both an ailing mother and father. During the year, Benson and Adele made the following gifts: Benson - Condo for life (appraised). Valued at $1,000,000 to his three children - Remainder interest in the condo - Valued at $200,000 to his 6 grandchildren - Cash - $150,000 to his three children ($50,000 each) - Cash to 529 plan - $420,000 for his 6 grandchildren Adele - Cash to 529 plan - $420,000 to each of the 6 grandchildren - Cash - $400,000 to her parents ($200,000 each) Assume all gifts are split. What is the total of Adele's taxable gifts for the year (2019)? A) $410,000 B) $610,000 C) $800,000 D) $1,295,000
C) $800,000
Benson has 3 children (1-3) and 6 grandchildren (4-9). His wife, Adele, is his second wife and she has both an ailing mother and father. During the year, Benson and Adele made the following gifts. Donor Gift Description Value Donee(s) Benson Condo for Life $1,000,000 1-3 together (appraised) Benson Remainder Interest $200,000 4-9 together in Condo Benson Cash $50,000 1 Benson Cash $50,000 2 Benson Cash $50,000 3 Benson Cash to 529 Plan $450,000 4-9 Adele Cash to 529 Plan $450,000 4-9 Adele Cash $200,000 mother Adele Cash $200,000 father Assume all gifts are split. What is the total of Adele's taxable gifts for the year? A) $330,000. B) $780,000. C) $800,000. D) $1,270,000.
C) $800,000. Rationale 1. The grandchildren exclude 5 x 2 x 15,000 x 6 = $900,000 for contributions to the Sec. 529 Plans, which permit payment of 5 times the annual exclusion gift. 2. Children (1, 2, and 3) x 2 x 15,000 = $90,000 3. Mother and father $30,000 x 2 = $60,000 Summary: $2,650,000 - ($900,000 + $90,000 + $60,000) = $1,600,000 / 2 = $800,000 (Adele's taxable gifts)
Crystal loans Holly $650,000, so that Holly can buy a home. Holly signs a note, with a term of 5 years, promising to repay the loan. The home is the collateral, but because Crystal and Holly have been friends since childhood, Crystal does not charge Holly interest. Which of the following statements is true? 1. The imputed interest is considered a taxable gift from Crystal to Holly. 2. The imputed interest is taxable income on Crystal's income tax return. 3. The imputed interest is an interest expense deduction for Crystal. 4. Holly can deduct the imputed interest on her income tax return. A) 2 only. B) 2 and 4. C) 1, 2, and 4. D) 1, 2, 3, and 4.
C) 1, 2, and 4. Rationale The loan is greater than $100,000 and does not meet any of the exceptions to imputing interest. Crystal will have imputed interest income based on the applicable federal rate and the imputed interest will also be considered a taxable gift to Holly. Because the loan is secured by Holly's personal residence, Holly will also have an itemized deduction equal to the imputed interest. Crystal does not have an interest expense.
Bill loans $99,000 to his daughter Maura. Why would interest not be imputed on this loan? A) Interest would not be imputed because the loan is less than the amount of the annual exclusion. B) Interest would not be imputed because loans of $100,000 or less are exempt from both income tax and gift tax consequences. C) Interest would not be imputed because Maura has unearned income of less than $1,000. D) Interest would not be imputed because Maura's earned income is less than $1,000.
C) Interest would not be imputed because Maura has unearned income of less than $1,000.
Mike created a joint bank account with his son, James. At what point has a gift been made to James? A) When the account is created. B) When James is notified that the account has been created. C) When James withdraws money from the account for his own benefit. D) When Mike dies.
C) When James withdraws money from the account for his own benefit.
After reading an estate planning article in a popular magazine, Vaughn has decided to take action to reduce his gross estate by making annual gifts to his 4 kids, 8 grandchildren, and 4 great-grandchildren. Vaughn has discussed the gifting strategy with his wife, Rebecca, and provided it does not result in use of any of her applicable gift tax credit, she has agreed to split each gift. Vaughn does not want to use his applicable gift tax credit either. If Vaughn carries the plan out for 5 years, how much can he gift in total while meeting Rebecca's requirement? Assume the 2018 exclusion amounts. A) $240,000. B) $1,200,000. C) $2,240,000. D) $2,400,000.
D) $2,400,000. Rationale Vaughn has 4 kids, 8 grandchildren, and 4 great-grandchildren for a total of 16 people that he can make annual exclusion gifts. 16 x $15,000 (annual exclusion) = $240,000 Gift Splitting with his wife would allow $480,000 ($240,000 x 2) If Vaughn and his wife made these transfers each year for the next 5 years, he could transfer $2,400,000 ($480,000 x 5 years = $2,400,000) without incurring any gift tax liability.
Mary and Emile would like to give the maximum possible gift that they can to their son without having to pay gift tax. Mary and Emile have never filed a gift tax return and live in a community-property state. How much can they transfer in 2018 to their son free of gift tax? A) $28,000. B) $4,417,800. C) $11,180,000. D) $22,390,000.
D) $22,390,000. Rationale Mary and Emile can each transfer $11,180,000 tax free during their lifetimes. Mary and Emile can also make a gift of $15,000 each during the year to qualify under the annual exclusion. In total to their son, Mary and Emile can transfer $22,390,000 (($11,180,000 x 2)+($15,000 x 2)=$22,390,000.
Mark Downey has established an irrevocable trust for his son, Donald. Donald is entitled to the trust income annually and has been given Crummey powers. The Crummey powers must be exercised during the last 60 days of the year. Mark will contribute $30,000 annually to the trust. How much can Donald demand in the first year due to his Crummey powers? A) $0 B) $5,000 C) $15,000 D) $30,000
D) $30,000
Carl would like to make a gift to his son, but does not want the value of the gift and the associated gift tax to total an amount greater than $100,000. Carl's cousin has told him about the net gift, but Carl has come to you for clarification. Which of the following statements from Carl's cousin is correct? A) A net gift does not qualify for the annual exclusion because it is a gift of a future interest. B) Carl must prepay the gift tax due when he makes a net gift. C) A net gift requires Carl's son to disclaim the interest in the gift. D) Carl will have taxable income to the extent the gift tax paid is greater than his adjusted basis in the gifted property.
D) Carl will have taxable income to the extent the gift tax paid is greater than his adjusted basis in the gifted property. Rationale Option d is a correct statement. As long as the gifted property is a gift of a present interest, a net gift qualifies for the annual exclusion. Also, Carl does not have any obligation to prepay the gift taxes. The gift taxes are due April 15th of the year after the gift. A net gift does not require the donee to disclaim the gift.
Which of the following statements about James and Carly, who are married, regarding the rules of the federal gift tax return is incorrect? A) James made a gift to his brother of $20,000 from his separate property. Carly, James' wife, agreed to elect gift-splitting. Only James will be required to file a gift tax return. B) Carly made a gift to her sister of $18,000 from the community property. Because it is community property, Carly and James are each deemed to have made a gift of $9,000. C) A gift tax return is due 3 and 1/2 months after the end of the donor's year-end but is extended by extending the personal return. D) Carly and James filed an extension file their federal income tax return. To extend any gift tax returns due for the year, Carly and James must file a gift tax return extension.
D) Carly and James filed an extension file their federal income tax return. To extend any gift tax returns due for the year, Carly and James must file a gift tax return extension.
Which of the following statements about James and Carly who are married, regarding the rules of the federal gift tax return is incorrect? A) James made a gift to his brother of $20,000 from his separate property. Carly, James' wife, agreed to elect gift-splitting. Only James will be required to file a gift tax return. B) Carly made a gift to her sister of $18,000 from community property. Because it is community property, Carly and James are each deemed to have made a gift of $9,000. C) A gift tax return is due 3½ months after the end of the donor's tax year-end but is extended by extending the personal return. D) Carly and James filed an extension to file their federal income tax return. To extend any gift tax returns due for the year, Carly and James must file a gift tax return extension.
D) Carly and James filed an extension to file their federal income tax return. To extend any gift tax returns due for the year, Carly and James must file a gift tax return extension. Rationale The gift tax return is extended with the federal individual income tax return - no separate extension is required. All of the other options are true statements.
Which of the following is eligible for the annual exclusion? A) Frank designates his daughter, Holly, beneficiary of his 401(k) plan. B) Frank designates his wife, Betty, as beneficiary of his life insurance policy. C) Frank funds an irrevocable trust with $1,100,000 for the benefit of his son. The terms of the trust allow a payout at the discretion of the trustee. D) Frank funds an irrevocable life insurance trust with the amount necessary to pay the premiums of the policy. The beneficiaries can take a distribution equal to the contribution each year.
D) Frank funds an irrevocable life insurance trust with the amount necessary to pay the premiums of the policy. The beneficiaries can take a distribution equal to the contribution each year. Rationale If the beneficiaries of a trust are given the right to take a withdrawal during the year, the contribution is eligible for the annual exclusion. Options a and b are not completed gifts and therefore do not qualify for the annual exclusion. The transfer to the trust in option c is a gift of a future interest and is not eligible for the annual exclusion.
Which of the following statements about gift tax annual exclusion is incorrect? A) The gift tax annual exclusion is indexed for inflation. B) Each individual is allowed to give up to the indexed amount to as many donees as he or she wishes each year. C) The gift must be of a present interest. D) Gifts into Section 2503(c) trusts for minors are ineligible for the gift tax annual exclusion because they are future interest gifts.
D) Gifts into Section 2503(c) trusts for minors are ineligible for the gift tax annual exclusion because they are future interest gifts.
Which of the following is NOT a reason for a father to make a lifetime gift of his home to his daughter? A) He would be relieved of property management and maintenance. B) The gift would reduce the total assets in his gross estate. C) Any income from the property will be taxed to his daughter. D) He can continue to enjoy the property even after it is titled to his daughter.
D) He can continue to enjoy the property even after it is titled to his daughter.
While completing Joelle's tax returns, Joelle's CPA asked her if she made any gifts during the year. Joelle faxed her the following information. Of the following, which would not require the filing of a gift tax return? A) Joelle created a revocable trust under the terms of which her son is the income beneficiary for his life and her grandson is the remainder beneficiary. Joelle created the trust with a $6,000,000 contribution and the trust made an income distribution in the current year. B) Joelle opened a joint checking account in the name of herself and her sister with $75,000. The day after Joelle opened the account, her sister withdrew $35,000 to purchase a car. C) Joelle created an irrevocable trust giving a life estate to her husband and a remainder interest to her daughter. Joelle created the trust with a $1,000,000 contribution. D) Joelle gave her husband one-half of an inheritance she received from her uncle. The inheritance was $3,000,000.
D) Joelle gave her husband one-half of an inheritance she received from her uncle. The inheritance was $3,000,000. Rationale The transfer in option d would qualify for the unlimited marital deduction, so it is not a taxable gift and Joelle would not have to file a gift tax return. All of the other transfers would create taxable transfers and would require a gift tax return to be filed. The transfer in option a to a revocable trust would still be subject to gift tax reporting because the trust has current beneficiaries, as Joelle's son received an income distribution in the current year.
Randy transferred property with a fair market value of $56,000 to his brother, Robbie. Randy's adjusted basis in the property was $23,000. Of the following statements related to this transfer, which is correct? A) Robbie has an adjusted basis in the property of $0. B) Randy must recognize a capital gain on this transfer of $33,000. C) If Robbie subsequently sells the property for $60,000, he will have a capital gain of $4,000. D) Randy has a taxable gift to Robbie of $41,000.
D) Randy has a taxable gift to Robbie of $41,000. Rationale Randy made a taxable gift to Robbie of $41,000. The taxable gift is calculated on the fair market value as of the date of the transfer, $56,000, less the annual exclusion available, $15,000 for 2018 ($56,000-$15,000=$41,000). Option a is incorrect because the donee has a carry-over of the donor's adjusted basis when the fair market value is greater than the donor's adjusted basis. If the donor had paid gift tax on the transfer, an allocation of the gift tax attributable to the appreciation of the property would have been added to the donee's adjusted basis. Option b is incorrect because a donor does not recognize gain on a gift of appreciated property. Option c is incorrect as Robbie's adjusted basis will carryover, as described above, and his capital gain would be $37,000 ($60,000 - $23,000). (Provided Randy did not pay any gift tax on the transfer.)
Randy transferred property with a fair market value of $56,000 to his brother, Robbie. Randy's adjusted basis in the property was $23,000. Of the following statements related to this transfer, which is correct? A) Robbie has an adjusted basis in the property of $0. B) Randy must recognize a capital gain on this transfer of $33,000. C) If Robbie subsequently sells the property for $60,000, he will have a capital gain of $4,000. D) Randy has made a taxable gift to Robbie of $41,000.
D) Randy has made a taxable gift to Robbie of $41,000.
