GIFT TAXATION

Question 1

present interest gift

Answer 1

trust income interests where annual or more frequent distribution is mandatory

Question 2

present interest gift

Answer 2

life estates- ownership of the right to use property presently but not ownership of the property itself

Question 3

present interest gift

Answer 3

estates for a term certain

Question 4

present interest gift

Answer 4

bonds or notes ( even though interest is not payable until maturity)

Question 5

present interest gift

Answer 5

unrestricted transfers of life insurance policies

Question 6

future interest gift

Answer 6

reversions- gifting assets and later getting the property back

Question 7

future interest gifts

Answer 7

remainders- distributed at some future time

Question 8

future interest gift

Answer 8

trust income interests where accumulation of income by a trustee is mandatory and accumulations are distributed at some future time at the discretion of the trustee

Question 9

future interest gift

Answer 9

present interests without ascertainable value

Question 9

Which of the following transactions is subject to the gift tax before the gift tax annual exclusion is taken into account?
A. Contribution of cash to a candidate for the U.S Senate
B. Transfer to a trust for the benefit of relatives where the donor determines the amount of distributions to be made
C. Reimbursement to a grandchild for medical school tuition
D. Naming of a new beneficiary on an insured’s life insurance policy

Answer 9

C. Amounts paid on behalf of a donee for tuition are only excluded from the gift tax if the payment is made directly to the educational institution.
-a: political contribution is not a gift for tax purposes lol
-b: not a complete gift if the donor retains the right to determine the amount of distributions to be made, so it is not subject to the gift tax
-d: not a complete gift bc it is subject to a conditional precedent (the death of the insured) so it is not subject to the gift tax

Question 10

During the taxable year, Blake transferred a corporate bond with a face amount and fair market value of $20,000 to a trust for the benefit of her 16-year-old child. Annual interest on this bond is $2000 which is to be accumulated in the trust and distributed to the child on reaching the age of 21. The bond is done to be distributed to the donor or her successor in interest in liquidation of the trust. Present value of the total interest to be received by the child is $8710. The amount of the gift that is excluded from taxable gifts is:
A. $20,000.
B. $15,000.
C. $8710.
D. $0.

Answer 10

D. The annual exclusion applies only to transfers of a present interest. An amount will not be treated as a present interest if the governing instrument provides that the specific sum of income is to be accumulated in the trust, and not paid at least annually. And exception exists for gifts to trust with beneficiaries under age 21, which allows an annual exclusion if the beneficiary receives accumulated interest and assets at age 21. According to the fax, the beneficiary will not receive the bond at age 21. Thus the transfer is not eligible for the annual exclusion. No amount of the gift is excluded from taxable gifts.

Question 11

Bob, a single taxpayer itemizes deductions on his individual federal income tax return. In the current year he donated his personal car to a qualified charitable organization. He bought the car two years ago for $18,000. The car was worth $12,000 at the time of the donation. The organization sold the car four months later for $10,000.
What is the amount of Bob’s charitable contribution deduction for the used car he contributed to the charitable organization?
A. $18,000.
B. $12,000.
C. $10,000.
D. $0.

Answer 11

C. Bob’s charitable contributions deduction is limited to the $10,000. Gross proceeds from the charitable organizations sale of the car.
The car is ordinary income property because it is a personal use asset that has depreciated in value. The donors deduction for ordinary income property that has depreciated in value is generally limited to the fair market value of the property at the time it was donated since it is less than the donors adjusted basis in the property. however, for the donation of a qualified vehicle that is subsequently sold by the charitable organization, the donors deduction is further limited. Since the fair market value at the date of the donation is more than $500. Bob’s deduction is limited to the lesser of the $12,000 FMV at the date of the donation or the organizations $10,000 Gross proceeds from the sale of the car which is the $10,000 amount.
Note:
Bob’s charitable contributions, deduction for the donation of his personal used car to a charitable organization is not
A: his $18,000 adjusted basis in the car because the car had depreciated in value at the time of the donation.
B: the $12,000 FMV at the time of donation, because the car is a qualified vehicle that was sold by the organization for less than it’s FMV when it was donated
D. The donation of the car to the charitable organization is a qualified charitable contribution and Bob’s deduction is limited to the $10,000. Gross proceeds from the organization sale of the car.