Gift and Estate Taxation Flashcards
(32 cards)
What is the Gift Tax Basics?
o Property transferred while taxpayer living
What is Gift Taxation – for Donor?
o A $14,000 exclusion for each spouse is allowed forcalculating gift tax
o If a couple gifts $30,000 cash to a friend, the amount of the gift taxable to the couple for gift tax purposes would be $2,000 ($30,000 - $28,000)
o In order to get the exclusion, the recipient must immediately acquire a present interest in the property and get unrestricted access to the property and all of its benefits
o If the gift is an annuity, use Present Value to determine the gross gift
Must the recipient gain all rights to the gifted property?
Yes, recipient must gain all rights to property.
What happens if the recipient merely gains a future ownership?
The present value of the gift is 100% taxable to donor and cannot exclude from gift tax calculation.
Total Taxable Gifts Calculation
= Total Taxable Gifts for Current Year
+ Taxable Gifts From Prior Years
What are some Gift Tax characteristics – Donee (Recipient)?
o Property received through gifts not income to recipient o Loss on Sale of Property " Basis is FMV on date of gift o Gain on Sale of Property " Basis is same as Donor o No G/L if Donor Basis
What are characteristics of Gift Tax Returns?
o Calendar-year basis only
o Due April 15
o If appreciated property is gifted and the recipient dies within one year and is transferred back to original owner after death, basis reverts back to decedent’s basis prior to death instead of basis increasing to FMV
“ Basically, if you gift an appreciated property worth $10k with a basis of $1k to someone who is about to die and then the property passes back to you from their estate, normally your basis would be the FMV at death ($10k), but the IRS won’t let you do that – your basis reverts back to the decedent’s basis ($1k) from when you gifted the property to them
What are Complex Trusts?
o Income distributions are optional
o Accumulation of income OK
o Charitable contributions OK
“ Contributions using tax-exempt income are not deductible
o Distribution of Trust Corpus (Principal) is allowed
o Allowed personal exemption of $100
What are Simple Trusts?
o Income distributions are mandatory
o Accumulation of income is disallowed
o No charitable contributions allowed
o Distribution of Simple Trust Corpus disallowed
1. Remember – Distribution of Complex Trust Corpus is allowed.
2. A way to remember it is that it’s so complex that they don’t care if you distribute the Corpus
o Allowed personal exemption of $300
Are expenses and fees from tax-exempt income deductible for either a Complex or Simple Trust?
No
Can Trusts have a Net Operating Loss?
Yes, any unused NOL flows through to the beneficiaries
What is an Estate?
Property is transferred after taxpayer’s death
What are the 2015 Tax Year rules for estate taxes?
o First $5,430,000 is exempt
o 40% tax on amount > $5,430,000
What are the tax rules for medical expenses paid after death?
Expenses paid after death but incurred within 1 year of death go on decedent’s personal tax return
Are Foreign Income and Gift Tax credits allowed?
No, disallowed
Can Estates have a Net Operating Loss?
Yes, any unused NOL flows through to the beneficiaries
Gross Estate Calculation
(Cash + Property FMV @ Death/Alt)
Taxable Estate Formula
+Receivables
Total Taxable Amounts Calculation
Taxable Estate
+ Taxable Gifts (Post ’76)
Transfer Tax Calculation
Total Taxable Amounts
X Estate Tax Rate
Net Estate Tax Liability Calculation
Transfer Tax
What is the Estate Tax on joint Tenancy?
When two non-spouses jointly own property
Amount in Estate Calculation on Joint ownership
o FMV at death x % Ownership Example: Brother paid 75% of property Sister paid 25% FMV is $100k at sister’s death $25k goes into sister’s estate
What is the Estate Tax – Tenancy By Entirety (Marriage)?
½ of marital assets go to deceased spouse’s estate
What is Estate Tax – Tenancy In Common?
o A, B, and C own property
o If A dies, FMV of A’s share goes to heirs
