12.3 - Gift Tax --- Estates, Trusts and Wealth Transfer Taxes Flashcards
Taxes
What is a transfer tax?
a tax imposed on the person transferring the property
Taxes
Who are income taxes imposed on?
imposed on person receiving the income
Gift Tax
Define gift tax
transfer tax based off the value of gift tranferred
Gift Tax Liability Calculation
Calculate “taxable gifts for the current year”
Gift Amount (FMV on date of gift)
- Exclusions
- Deductions
= Taxable Gifts for Current Year
Gift Tax Liability Calculation
Calculate “taxable gifts to date”
Taxable Gifts for Current Year
+ Taxable Gifts for Prior Years
= Taxable Gifts to Date
Gift Tax Liability Calculation
Calculate “tentative gift tax”
Taxable Gifts to Date
* Tax Rate
= Tentative Gift Tax
Gift Tax Liability Calculation
Calculate “gift tax liability”
Tentative Gift Tax
- (Prior Year’s Gifts * Current Tax Rates)
- Applicable Credit Amount
= Gift Tax Liability
Amount of Gift
Define “amount of gift”
Any excess of FMV over consideration paid
Amount of Gift
What is the amount of gift made in property?
FMV of property at date of gift
Amount of Gift
Calculate the gift amount from the following example:
Neighbor wants to purchase a motorcycle and I have a bike in my garage. The FMV of motorcycle = $10,000 and the FMV of property received = $1,000.
Reportable gift or excess value given up is $9,000
Annual Exclusion
What is the annual exclusion for gift tax?
$14,000 exclusion available to each donee
Annual Exclusion
How does the annual exclusion effect gift tax?
It often reduces or eliminates gift tax liability
Annual Exclusion
Are there limitations to the annual exclusion?
limited to gifts of present interest
Gift Splitting
How should spouses file their tax returns if they are gift splitting?
File separate gift tax returns
Gift Splitting
How are spouses to treat gift splitting for tax purposes?
Each spouse may treat any gift made as 1/2 made by each spouse
Medical & Tuition Costs:
How does student status, foreign or domestic institution & relationship to taxpayer impact the medical and tuition costs deductible for gift tax purposes?
they are irrelevant….gift is still excluded for gift tax purposes
Medical & Tuition Costs:
How are “paid” medical expenses treated for gift tax purposes?
Medical expenses “paid directly” to provider are excluded from taxable gifts
Medical & Tuition Costs:
How are “paid” tuition costs treated for gift tax purposes?
Tuition “paid to” educational organizations are excluded
Medical & Tuition Costs:
How are funds for room, board and books treated for gift tax purposes?
they are not excluded
Marital Deduction:
What are the 2 requirements to apply the marital deduction for gift tax purposes?
- Donor & donee must be married
- Donee must be U.S. citizen
Marital Deduction:
What is the marital deduction limitation for gift tax purposes?
- Limited to total gifts made
- 1st reduced by annual exclusion
- Remainder eliminated by the marital deduction
Marital Deduction:
Are gifts to spouses taxable?
No
Charitable Contribution:
How much is the charitable contribution deduction?
Deduction is amount of gift reduced by annual exclusion
Charitable Contribution:
What amount is deductible for the charitable contribution deduction?
- FMV donated is deductible
Spousal Support / Political Contributions:
Is spousal support considered a gift for “gift tax” purposes?
No
Spousal Support / Political Contributions:
Are political contributions subject to gift tax?
No
Gift Tax Return:
What form is used to file a gift tax return?
Form 709
Gift Tax Return:
Identify 3 situations when a gift tax return is not required
- Not required if all gifts under:
- Annual exclusion amount
- Exclusion for medical / tuition payments
- Deduction for spousal transfers
Gift Tax Return:
When are gift tax returns due?
- Due by April 15th of the following tax year
- In case of year of death:
- Due the earlier of the regular due date or the estate tax due date
- In case of year of death:
Computing Gift Tax:
Identify the tax rate used to compute gift tax
- 18% rate up to $10,000
- rate increases over numerous brackets
Computing Gift Tax:
What is the maximum rate on cumulative gifts?
40% on cumulative gifts in excess of $1 million
Computing Gift Tax:
What type of tax rates are used in computing gift taxes?
Unified tax rates
Computing Gift Tax:
How is tentative gift tax impacted by the product of prior years’ taxable gifts and the CY rates?
- reduced by the product of prior years’ taxable gifts and the CY rates
Computing Gift Tax:
How does ACA or Applicable Credit Amount impact tentative tax?
reduces tentative tax
Computing Gift Tax:
What is the applicable credit amount for 2016?
$2,125,800 for 2016
Computing Gift Tax:
What is the exclusion for ACA deductions reduced by amounts allowable as credits for all preceding tax years?
- Excludes the 1st $5.45 million of taxable gifts
