Federal Gift Tax

Question 1

What are 2 types of Unified Transfer Tax?

Answer 1

Federal gift tax.
Federal estate tax.
Use the same tax rate.

Question 2

Who is primary liable for gift tax? The estate tax?

Answer 2

G: The donor.
E: The decedent’s estate.

Question 3

What is unified credit? Can this be used for both gift and estate tax?

Answer 3

It provides an exemption for transfers from an estate so that most individuals are not subject to the estate tax at death.
Yes, but the max limit of 5 million applies to both total.

Question 4

Trust: when TP transfers property to a trust, what gifts did he make if any?

Answer 4

• Income interest (proceeds from the property; ie. interest income, dividends, gains, etc).
• Remainder interest (actual property).

Question 5

Trust: Income interest; who receives what?

Answer 5

• The beneficiary of income interest receives income from the trust each year.
• The beneficiary of remainder interest receives the property (corpus) of trust when the trust terminates (often at death of beneficiary of income interest).

Question 6

Trust: How are income and remainder interest determined?

Answer 6

Using actuarial tables provided by IRS.

Question 7

Trust: what rate is it used in the valuation?

Answer 7

120% of the applicable Federal midterm rate for the month in which the transfer is made.

Question 8

Federal gift tax: how is the value determined?

Answer 8

FMV.

Question 9

Federal gift tax: when is the due date for gift tax returns? Which form is used?

Answer 9

April 15.

Form 709.

Question 10

Federal gift tax: what’s the max amount before having to pay tax? Is this for total of all donees?

Answer 10

$14,000 (2017).

No, per donee.

Question 11

Federal gift tax: what is a criteria for annual exclusion?

Answer 11

The gift must be of a present interest (donee must have an immediate access to use).

Question 12

Federal gift tax: what is gift splitting?

Answer 12

Spouses can give an amount up to twice the annual exclusion a year without tax.

Question 13

Federal gift tax: gift splitting: must both spouses actually give gift to qualify for this?

Answer 13

No, it doesn’t matter which spouse actually gave the gift.

Question 14

Federal gift tax: gift splitting; how can TP use this?

Answer 14

Elect gift-splitting on a gift tax return and file it.

Question 15

What are gifts?

Answer 15

• Cash and property transfers.
• Debt forgiveness.
• Sales at bargain prices.
• Loans to individuals at a bargain (below-market interest rates).
• Transfer of property into trust for the benefit of others.
• Purchases of jointly owned real estate or securities if one co-owner contributes more than a fair proportionate share.

Question 16

Federal gift tax: what are exceptions (unlimited exclusions)?

Answer 16

• Gifts to spouses (spouse must be a US citizen, gift is not terminable), charities, and political organizations.
• Educational tuition and medical expenses paid on behalf of an individual ONLY if the amounts are paid directly to the domestic institutions.
• Donations of personal services.
• Transfer that can be revoked (considered not gift).
• Pmts to minor family members for food, shelter, clothing, and other reasonable support needs.
• Pmts to employees that in substance are compensation for personal services (considered wages).
• Property settlement in divorce.

Question 17

What is gift tax formula?

Answer 17

Taxable gifts for current year
\+ Taxable gifts for all prior years
= Total life time gifts
x Unified tax rates
= Total gift tax
- Gift tax paid in prior years (at current rates)
- Unified tax credit (if elected. don't have to use it to keep it to use for estate tax).
= Gift tax due for current year.

Question 18

When a property is gifted, what would be the basis for the receiver? Which amount is used for gift tax?

Answer 18

The basis of giver.

FMV.

Question 19

When the donor pays gift tax, what is the implication for the basis of the donee?
Ex: The basis of donor: $160,000. Tax paid: 66,000. FMV: $200,000.

Answer 19

The donee’s basis in the property for computing gain for income tax purposes is the donor’s basis of $160,000. Since the donor paid $66,600 of gift tax, the donee’s $160,000 basis is increased by the following amount: Appreciation in Property/FMV of Property × Gift Tax Paid = $40,000/$200,000 × $66,600 = $13,320
The donee’s basis is $173,320 ($160,000 + $13,320).

Question 20

Does future interest apply for annual exclusion? When is it taxed?

Answer 20

No, fully taxable in the current year