Section 3B&C

Question 1

On December 1, Year 4, Jim Miller placed in service office furniture (7-year life), which cost $28,000. Jim did not elect Section 179 expensing or bonus depreciation. The office furniture was the only asset purchased during the year. What amount can Jim claim as depreciation under MACRS for Year 4?

Answer 1

First-year depreciation under MACRS is based on double declining balance. A 7-year life would yield depreciation of 2/7 the first year. Because the purchase was made in December, the mid-quarter convention is used and 1-1/2 months of depreciation is recorded. Depreciation is $1,000 ($28,000 × 2/7 × 1.5/12).

Question 2

Decker sold equipment for $200,000. The equipment was purchased for $160,000 and had accumulated depreciation of $60,000. What amount is reported as ordinary income under IRC Section 1245?

Answer 2

$60k

Amount realized $200,000
Less: Adjusted basis
Purchase price $160,000
Less: Accum. depreciation (60,000)
Adjusted basis (100,000)
———
Realized gain $100,000

Section 1245 ordinary income (lesser
of realized gain or depreciation) $ 60,000
=========

Question 3

The Section 179 limit is set at $___under the Tax Cuts and Jobs Act of 2017 (TCJA). Businesses exceeding a total of $2.5 million of purchases in qualifying equipment have the Section 179 deduction phased out ___. Since Browne’s purchase cost $120,000, he can deduct the full $120,000.

Answer 3

$1M

dollar-for-dollar

Question 4

Clay mining deposits can be written off using a percentage depletion rate of either ___depending on the end use of the clay.

Gold, silver, copper, and iron ore mining use the___depletion rate for the cost recovery of the capital investment in the mining properties.

Percentage depletion is generally not available for oil and gas wells. T/F

Answer 4

5% or 7.5%,

15%

True

Question 5

When business-use assets have been held for the long-term holding period, more than 1 year, and are sold at a loss, only Section ___is applicable.
Section __losses are long-term ordinary losses because the assets had to have been held for over a year to be considered a Section ___asset

Answer 5

1231

Question 6

. IRC Sections 1245 and 1250 are only applicable if the Section ____

Answer 6

1231 assets are sold at a gain

Question 7

On December 1, Year 2, Jeff Weber placed in service office furniture (7-year life), which cost $25,000. Jeff did not elect Section 179 expensing. The office furniture was the only asset purchased during the year. What amount can Jeff claim as depreciation under MACRS for Year 2?

Answer 7

First-year depreciation under MACRS is based on double-declining balance. A seven-year life under double declining would yield depreciation of 2/7 for the first year. Because the purchase was made in December, the mid-quarter convention is used and 1-1/2 months of depreciation is recorded. Depreciation is $893 ($25,000 × 2/7 × 1.5/12).

Question 8

If a landlord abates a portion of rent due under a lease as a contribution toward a retail tenant’s construction work, how does the landlord handle the contribution on its tax return?

Answer 8

The landlord must treat the expense as a cost of nonresidential real property which has a MACRS life of 39 years. The landlord also recognizes rent income equal to the fair market value of the improvements.

Question 9

On May 1 of the prior year, Baker purchased equipment with a five-year useful life for a cost of $10,000. Baker adopted the MACRS depreciation system and did not utilize any special depreciation deductions. On March 1 of the current year, Baker sold the equipment. The MACRS depreciation schedule for five-year property is listed below:

First year: 20.00%
Second year: 32.00%
Third year: 19.20%
What amount of depreciation can Baker deduct in the current year?

Answer 9

1600

In most cases, a half-year of cost recovery is allowed under MACRS in the year of disposition or retirement. Current-year depreciation would be $1,600 ($10,000 × 32% × 6/12).

Question 10

All of the following statements are correct about listed property except:
T/F
it must be used in business more than 50% in order to be a Section 179 deduction.
straight-line depreciation must be used when the business use does not qualify the use of MACRS.
it must be used in business at least 50% or more in order to claim MACRS.
listed property includes passenger automobiles.

Answer 10

True
True
False
True

. If the property is not used predominantly (more than 50%) for qualified business use, the taxpayer cannot claim the Section 179 deduction or a special depreciation allowance. In addition, the taxpayer must figure any depreciation deduction under the modified accelerated cost recovery system (MACRS) using the straight-line method over the ADS recovery period.

Question 11

. If the property is not used predominantly (more than 50%) for qualified business use, the taxpayer cannot claim the ___deduction or a special depreciation allowance. In addition, the taxpayer must figure any depreciation deduction under the modified accelerated cost recovery system (MACRS) using the straight-line method over the ADS recovery period.

Answer 11

Section 179

Question 12

LISTED PROP
If business usage of such property is not more than 50%, the property does not qualify for regular (accelerated) MACRS, bonus, or the Section 179 first-year expense. It must be depreciated under ADS using the straight-line method. T/F

If future business usage drops below 50%, a permanent switch to the ___ is required

Answer 12

True

straight-line method is required.

Question 13

Alternative depreciation system:
depreciation under this method is calculated using the straight-line method without regard to __
Depreciation of real estate for the alternative minimum tax uses the ___

Answer 13

salvage value.

mid-month convention.

Question 14

May the taxpayer elect the straight-line method of depreciation for personal property?

No
Yes
Only for 5-year property
Only for 7-year property

Answer 14

Yes

The taxpayer may elect to use the straight-line method of depreciation for personal property. This election is available on a class-by-class basis for each tax year.

Question 15

What is the percentage depletion rate allowed by the Internal Revenue Code for the recovery of capital invested in mining coal?

5%
10%
15%
20%

Answer 15

10%

The percentage depletion rate for coal mined in the United States is 10%. Some types of mining for clay are allowed a 5% depletion rate. The 15% rate for mining includes gold, silver, copper, and iron ore.

Question 16

Business equipment purchased in the current year has three methods of cost recovery available: MACRS depreciation, bonus depreciation for certain assets, and/or Section 179. In what order should these methods of cost recovery be applied to calculate the deduction?

MACRS depreciation, bonus depreciation, Section 179 deduction
Section 179 deduction, bonus depreciation, MACRS depreciation
Bonus depreciation, Section 179 deduction, MACRS depreciation
Bonus depreciation, MACRS depreciation, Section 179 deduction

Answer 16

Section 179 deduction, bonus depreciation, MACRS depreciation

Question 17

Which of the following is the best description of the treatment of deprecation recapture?

To tax gain on the sale of a depreciable asset at ordinary income rates

Answer 17

True

Question 18

Data Corp., a calendar-year corporation, purchased and placed into service office equipment during November. No other equipment was placed into service during that year. Under the general MACRS depreciation system, what convention must Data use?

Answer 18

Mid-Quarter

Any time more than 40% of assets acquired during a tax year are placed into service in the last quarter of a year, under the MACRS depreciation system, the company must use the mid-quarter convention. Since Data Corp. (a calendar-year corporation) purchased and placed into service all of its office equipment during November, it must use the mid-quarter convention.

Question 19

IRC Section 179 is a provision of the tax law that allows the taxpayer to elect to expense up to a certain amount of ___property placed in service during the year.

Answer 19

tangible depreciable personal

Question 20

A taxpayer purchased 5 acres of land for $200,000 and placed in service other tangible business assets that cost $15,000. Disregarding business income limitations and assuming that the annual Section 179 limit has not been indexed for inflation, what maximum amount of cost recovery can the taxpayer claim this year?

Answer 20

and is not depreciable and does not qualify for Section 179 expensing.

$15K is the answer

Question 21

Rock Crab, Inc., purchases the following assets during the year:

Computer           $ 3,000
Computer desk        1,000
Office furniture     4,000
Delivery van        25,000
What should be reported as the cost basis for MACRS 5-year property?

Answer 21

$28k

The 5-year class includes automobiles, general-purpose light trucks, computers, and office machinery (typewriters, calculators, copiers, etc.).
The 7-year class includes heavy, special-purpose trucks, and office furniture and fixtures (desks, filing cabinets, etc.).

Question 22

A taxpayer sold for $200,000 equipment that had an adjusted basis of $180,000. Through the date of the sale, the taxpayer had deducted $30,000 of depreciation. Of this amount, $17,000 was in excess of straight-line depreciation. What amount of gain would be recaptured under Section 1245 (“Gain from Dispositions of Certain Depreciable Property”)?

Answer 22

$20k

Because the taxpayer sold equipment for $200,000 that had an adjusted basis of $180,000, the taxpayer has a gain of $20,000

Although a maximum of $30,000 could have been recaptured, the total gain in the sale was $20,000, limiting the depreciation recapture to $20,000..

Question 23

A covenant not to compete that is acquired with the purchase of a business is considered to be a Section 197 intangible eligible for ___ year amortization.

Answer 23

15-year

Question 24

Which of the following is a way to recover wear, tear, and exhaustion of property?

Depreciation and amortization
Cost recovery
Depletion

Answer 24

All of them

Question 25

While depletion relates to natural resources, no depreciation, cost recovery, or amortization is available for the following:

(1) Personal property not used in a trade or business
(2) Inventory
(3) Land

Answer 25

yep

Question 26

In terms of depreciation, what generally occurs for the first year of use of personal property?

Depreciation is on a pro-rated daily basis.
Depreciation begins on the first day of the month placed in service.
Half-year recovery method is used.
Depreciation begins on the last day of the month placed in service.

Answer 26

Half yr recovery is used

half-year’s recovery deduction is taken in the first year of use of personal property regardless of the month the property was placed in service

Question 27

half-year’s recovery deduction is taken in the first year of use of personal property regardless of the month the property was placed in service T/F

Answer 27

True

Question 28

Under the Internal Revenue Code, large integrated oil and gas producers can no longer use percentage depletion, but must use cost depletion instead. However, percentage depletion is still available to small independent oil and gas producers. What is the rate for calculating percentage depletion for domestic oil and gas production?

5%
10%
15%
20%

Answer 28

15%

Question 29

Nina Co., a calendar-year taxpayer, placed in service office furniture costing $10,000 on February 1, Year 3. Additional office furniture costing $10,000 was placed in service on November 1, Year 3. These were the only assets purchased during the year. Under MACRS depreciation, the appropriate convention and amount is:

mid-quarter $20,000.
mid-quarter $10,000; half-year $10,000.
half-year $20,000.
mid-month $20,000.

Answer 29

Mid-Q $20K

Incorrect
Normally the half-year convention applies to depreciate personal property placed in service. However, if more than 40% of the depreciable personal property is acquired in the last quarter of the year, the mid-quarter convention is used for all personal property acquired that year

Question 30

Incorrect
Normally the half-year convention applies to depreciate personal property placed in service. However, if more than __% of the depreciable personal property is acquired in the last quarter of the year, the _____is used for all personal property acquired that year

Answer 30

40

mid-quarter convention

Question 31

Lisa Podkopova purchased $120,000 of equipment for use in her business in the current year. Lisa had taxable income of $20,000 and elected the maximum Section 179 expense deduction. (Assume that there is no indexing for inflation and ignore bonus depreciation.) Under Section 179, Lisa may deduct:

Answer 31

Lisa can expense $20,000. Under the Tax Cuts and Jobs Act of 2017 (TCJA), the Section 179 limit is set at $1,000,000 and the phaseout threshold is $2.5 million; however, the deduction cannot exceed taxable income.

Question 32

Which of the following costs may be amortized over 60 months or expensed at the election of the taxpayer?

Patents
Goodwill
Trademarks
Research and experimental

Answer 32

Research & Experimental

Question 33

T/F
Because a trademark can be renewed every 10 years with the U.S. Patent and Trademark Office indefinitely, a business typically does not amortize a trademark in its accounting records.

Goodwill amortization is computed on a straight-line basis over a 10-year period

Answer 33

True

True

Question 34

Cobb created a $500,000 trust that provided his mother with an income interest for her life and the remainder interest to go to his sister at the death of his mother. Cobb expressly retained the power to revoke both the income interest and the remainder interest at any time.

The income interest at the trust’s creation:
is a gift of present interest.
is a gift of a future interest.
is not a completed gift.
is a complete gift to the mother but not to the sister.

Answer 34

Not a completed gift

The income interest would not be a completed gift at the trust’s creation because the grantor retained the power to revoke the trust.

Question 35

The income interest would would be a completed gift at the trust’s creation if the grantor retained the power to revoke the trust.

To be a completed gift, the grantor must relinquish all dominion and control over the transferred property. T/F

A transfer in trust can be a complete gift if it is irrevocable and the grantor does not retain any powers over the trust. T/F

Answer 35

False - they cant retain the power to revoke in order to be acompletd gift

True

True

Question 36

Rita Ryan died leaving a will naming her children, John and Dale, as the sole beneficiaries. In her will, Rita designated John as the executor of her estate and excused John from posting a bond as executor. At the time of Rita’s death, she owned a parcel of land with her sister, Ann, as joint tenants with right of survivor­ship. In general, John as executor, must:

post a bond despite the provision to the contrary in Rita’s will.
serve without compensation because John is also a named beneficiary in the will.
file a final account of the administration of the estate.
relinquish the duties because of the conflict of interest as executor and beneficiary.

Answer 36

file a final account of the administration of the estate.

A beneficiary may also serve as an executor for the estate. There are many responsibilities of an executor, one of which is filing a final account of the administration of the estate. The other answer choices may be possibilities but are not necessarily required.

Question 37

Executor's responsibilitie
Execute the decedent's \_\_\_.
Offer the will for \_\_\_.
Distribute property to \_\_\_.
Pay \_\_\_ and \_\_\_ of the estate.
Prepare a final \_\_\_of the estate.
Prepare and file an \_\_\_if the estate has taxable income during administration.

Answer 37

final wishes
probate
beneficiaries
taxes and debts 
accounting / account
income tax return

Question 38

Tom and Ann Curry, U.S. citizens, were married for the entire calendar year. Tom gave a $40,000 cash gift to his Uncle Grant. The Currys made no other gifts to Grant this year. Tom and Ann each signed a timely election stating that each made one half of the $40,000 gift.

The cash transfer: is a gift of present interest….WHY

Answer 38

The cash transfer is a present interest because the recipient has immediate control and enjoyment of the gift.

Question 39

___may be used by married taxpayers to reduce the amount of property subject to the gift tax. This technique reduces the total amount of gift taxes
payable.

Each spouse will then apply the $___annual exclusion to the gifts made to each donee, enabling a total of $___ to be excluded from gift tax.

A joint return for gift taxes is permissible

Answer 39

Gift splitting

15,000 , 30,000

False - No its not

Question 40

___ is required by each donor who makes gifts of a present interest in property, when the total value of such gifts to any one donee exceeds $15,000 during 2018

Answer 40

A gift tax return

Question 41

Any gift of a future interest in property must be reported on ____

The gift tax return (IRS Form 709) is filed on a ___basis, and the due date for filing the return and paying the tax is ___

 	Gifts in excess of $15,000 to a qualified charity require a gift tax return if the donor's entire interest in the property was transferred.

Answer 41

a gift tax return.

calendar-year , April 15

False - it does not

Question 42

A transfer for the benefit of a person who has not reached 21 is considered a gift of present interest if ALL of the following occur:

1. Both Prop & Income may be ___by the minor before they reach 21
2. Any portion of the prop/Income not expended before 21 must ___
3. If minor dies before 21, the prop & Income must be payable to the ___ or ___

Answer 42

spent
go to the minor at 21 yrs old
minor’s estate or as he directs

Question 43

Under the provisions of a decedent’s will, the following cash disbursements were made by the estate’s executor:

A charitable bequest to the American Red Cross
Payment of the decedent's funeral expenses
What deduction(s) is (are) allowable in determining the decedent's taxable estate?

Answer 43

Both

  Gross estate
- Deductions:
     Funeral expenses
     Administration expenses
     Debts of the decedent
     Casualty losses
     State Estate Tax/Death Taxes
     Charitable bequests (unlimited)
     Marital deduction (unlimited)

Question 44

The ___ includes all property, regardless of location, in which the decedent had an interest at the time of death. The taxable estate of nonresident aliens is limited to property situated within the United States.

The value of property included in the decedent's gross estate is generally the \_\_\_ value of such property at the date of the \_\_\_.

Answer 44

gross estate

fair market , date of decendent’s death

Question 45

Which of the following credits may be offset against the gross estate tax to determine the net estate tax of a U.S. citizen?

Unified credit
Credit for gift taxes paid on gift made after 1976

Answer 45

Only Unified Credit

Estate and gift taxation has been combined into a unified system. The unified credit is a specific credit allowed against the estate tax and will encompass prior gifts as well.

Question 46

The ___ is a credit that allows donors and decedents to transfer a limited amount of property without being subject to the gift or estate tax.

Answer 46

unified credit

Question 47

The ___(GST) is imposed on lifetime and testamentary transfers to “skip persons.” A skip person is anyone who is ____ generation(s) or more below the transferor

Answer 47

generation-skipping tax

two

Question 48

A lifetime exemption of $___is available for gifts in excess of the annual exclusion starting in the year 2018.

Answer 48

11,180,000

Question 49

Which of the following transactions is subject to the gift tax before the gift tax annual exclusion is taken into account?

Contribution of cash to a candidate for the U.S. Senate
Transfer to a trust for the benefit of relatives where the donor determines the amount of distributions to be made
Reimbursement to a grandchild for medical school tuition
Naming of a new beneficiary on an insured’s life insurance policy

Answer 49

Reimbursement to a grandchild for medical school tuition

Reimbursement made directly to a grandchild for medical school tuition is a taxable gift. Transfers to trusts and the naming of a new beneficiary have no gift tax impact.

Question 50

. The following payments are not subject to the federal gift tax:
____payments made to an educational organization on another’s behalf;

___payments for the health care of another person (payments must be made directly to the care provider);

contributions to ___organizations.

Answer 50

tuition
medical care
political

Question 51

This year, Beck gave $5,000 cash to a nephew, canceled $3,000 of the same nephew’s indebtedness, donated $1,500 to a political party, and gave $1,200 of municipal bonds to a parent. What is the amount of Beck’s gifts before considering the gift tax annual exclusion?

Answer 51

9200

Gift tax is levied against the donor on the fair market value of all taxable gifts made in each calendar year. The gift tax is an excise tax levied on the transfer of property when less than adequate and full consideration was received. Payments made to political organizations are not considered gifts. Therefore, Beck’s total gifts before considering the annual gift tax exclusion are for all items except the donation to the political party, or $9,200 ($5,000 + $3,000 + $1,200).

Question 52

During Year 2, Yeats transferred property worth $20,000 to a trust with the income to be paid to her 22-year-old niece Jane. After Jane reaches the age of 30, the remainder interest is to be distributed to Yeats’ brother. The income interest is valued at $9,700 and the remainder interest at $10,300.

The remainder interest is: a gift of future interest…WHY

Answer 52

The remainder interest is a future interest because the beneficiary will not receive enjoyment of the gift until a future time when the beneficiary of the income interest reaches age 30.

To be a gift of a present interest, the recipient must have an unrestricted right to immediate possession, use, or enjoyment of the property or income from the property.

Question 53

If the executor of a decedent’s estate elects the alternate valuation date and none of the property included in the gross estate has been sold or distributed, the estate assets must be valued as of how many months after the decedent’s death?

Answer 53

6

to use an “alternate valuation date” which is generally six months after death

Question 54

In order to elect the “alternative valuation date,”both the value of the gross estate and the estate tax liability must be ___ than those amounts would be at the date of death.

Answer 54

less

Question 55

Properties in which the decedent possessed a general power of appointment—special powers of appointment are included.

Answer 55

False - they are not included

Question 56

A taxpayer died in year 1 with a gross estate valued at $100,000,000. In the taxpayer’s will, he gave $40,000,000 of his gross estate to his surviving spouse, with no restrictions. His surviving spouse also receives $20,000,000 in assets not included in the taxpayer’s gross estate. What is the amount of the marital deduction for the taxpayer’s estate?

Answer 56

$40M

The marital deduction is an unlimited deduction available for all property given to a spouse. Although all $60,000,000 would be covered under the marital deduction, the question specifically asks for the amount related to the taxpayer’s estate, which would be the $40,000,000.

Question 57

The marital deduction is an has a limit of $10M

Charitable Deduction has a limit of $1M

Answer 57

False - it is an unlimited deduction

False - it is an unlimited deduction

Question 58

Steve and Kay Briar, U.S. citizens, were married for all of Year 18. In Year 18, Steve gave a $30,000 cash gift to his sister. The Briars made no other gifts in Year 18. They each signed a timely election to treat the $30,000 gift as made one-half by each spouse. Disregarding the applicable (unified) credit and estate tax consequences, on what portion of the Year 18 gift must the Briars pay gift tax? (Assume the annual exclusion is $15,000.)

Answer 58

Steve gave a $30,000 cash gift to his sister. Steve and Kay agree to “split-gift” this. Each of them can give away $15,000 per year to each donee without any gift tax liability, for a combined total of $30,000. Therefore, the Briars owe $0 gift tax.

Question 59

Joseph and Jill have been married for 20 years. Joseph inherited a house worth $2,500,000 from his father. Assume that the annual gift tax exclusion is $20,000. Joseph is gifting the house to Jill as long as she puts an apple orchard on the land. Jill decided in the end to put a swimming pool in place of the apple orchard. What amount of the $2,500,000 can Joseph give to Jill without incurring a gift tax liability?

Answer 59

$0
A gift tax marital deduction does not apply to a transfer of a terminable interest in property. A terminable interest is one that will terminate on a lapse of time or on the occurrence, or failure to occur, of a contingency.

Therefore, Joseph will not be able to claim the gift tax exclusion. The gift was contingent on Jill planting an apple orchard, and she decided on a swimming pool instead.

Question 60

For the gift tax marital deduction to apply, the spouse must be a U.S. citizen at the time of the gift. T/F

Answer 60

True

Question 61

Following are the fair market values of Wald’s assets at the date of death:

Personal effects and jewelry: $150,000
Land bought by Wald with Wald’s funds five years prior to death and held with Wald’s sister as joint tenants with right of survivorship: $1,800,000
The executor of Wald’s estate did not elect the alternate valuation date. The amount includible as Wald’s gross estate in the federal estate tax retu

Answer 61

As Wald provided all of the funds to purchase the land, 100% of the fair value must be included in the estate along with all of Wald’s personal effects and jewelry.

Personal effects and jewelry $ 150,000
Land 1,800,000
Total $1,950,000

Question 62

A $50,000 cash gift will reduce an individual’s unified credit against the gift tax if the gift is made to a:

university located in the United States.
14-year-old child living in the United States.

Answer 62

14 yr old

A donation differs from a gift in that it is a cash or property transfer to a qualified charitable organization, such as a church. Gifts to a spouse are not taxable and are unlimited. As long as the gift to a university is for tuition, it is also not taxed.

Question 63

An unlimited marital deduction is allowed against the estate tax. For this deduction to apply, the decedent must be ___and survived by their spouse;
the spouse must be a U.S. ___;
the property must be included in the decedent’s gross estate and pass to the ___;
the spouse’s interest in the property must not be a ___

Answer 63

married
citizen
surviving spouse
terminable interest.

Question 64

Generally, which of the following parties would have the first priority to receive the estate of a person who dies without a will?

The state
A child of the deceased
A parent of the deceased
A sibling of the deceased

Answer 64

Child

. Most states begin with the decedent’s spouse, and then move to his or her children and their descendants.

Question 65

A taxpayer died, leaving a large estate. At that time, the taxpayer solely owned a $1,000,000 life insurance policy listing the surviving spouse and each of three children as equal beneficiaries. What is the estate tax marital deduction, if any, for this policy?

Answer 65

250K

he marital deduction is an unlimited deduction available for all property given to a spouse. Since the surviving spouse will receive 1/4th of the $1,000,000 insurance proceeds, the deduction is $250,000.

Question 66

Within how many months after the date of a decedent’s death is the federal estate tax return (Form 706) due if no extension of time for filing is granted?

Answer 66

9 Months

Question 67

A federal estate tax return, if required, is due ___after the date of the decedent’s death.

An executor may request and obtain from the IRS an extension of time for filing Form 706 (Federal Estate Tax Return) up to an additional __.

Answer 67

nine months

six months

Question 68

Sue and Bob had been married 30 years when Bob passed away in Year 13. Bob’s taxable estate was equal to $4,000,000 and no taxes were paid due to the amount allowed as an estate exclusion. Sue passed away in Year 16. The exclusion amount for Year 13 was $5,250,000, and $11,180,000 for Year 16 (higher exemption amount due to new tax rules and regulations). Her taxable estate was $16,590,000. What amount of her estate would be subject to estate taxes after consideration of the estate exclusion?

Answer 68

A total of $4,160,000 of Sue’s estate would be subject to estate taxes after consideration of the estate exclusion. Since Bob did not fully utilize his exclusion amount, the unused amount of $1,250,000 could be used by Sue’s estate. Therefore, $1,250,000 from Bob plus Sue’s exclusion amount of $11,180,000 equals a total of $12,430,000, which reduces Sue’s taxable estate to $4,160,000.

Question 69

The executor or personal representative must assure the filing of IRS Form 706 to assure what

Answer 69

that portability will be available.

Question 70

No interest is imputed on gift loans of $___ or less between individuals, unless the loan proceeds are used to purchase ___

Answer 70

10,000, income producing property

Question 71

With a revocable trust, the ___ is allowed to amend, alter, or revoke this trust at any time as long as the grantor is not mentally incapacitated.

. The maximum gift tax rate is __%

Answer 71

grantor

40%

Question 72

Which of the following is a disadvantage of a revocable trust?

The grantor will be subject to gift taxes on the transfer of property to the trust.
The trust assets are subject to being probated upon the death of the grantor.
The grantor loses power to control the trust funds for federal estate tax purposes.
The trust is included in the gross estate of the grantor.

Answer 72

The trust is included in the gross estate of the grantor

Question 73

A revocable trust is set up while the person is alive and means that the person who set up the trust can change their mind. If a revocable trust has a vehicle placed in it, the person can remove the vehicle and terminate the trust. T/F

Grantor is allowed to amend/revoke trust as long as they’re not ____

Answer 73

True

mentally incapacitated

Question 74

A trust is a ___ if the grantor retains certain powers or ownership benefits.

n general, a grantor trust is ignored for tax purposes and all of the income, deductions, etc. are treated as belonging directly to the ___. Thus, there are no gift taxes on the transfer of ___to the trust.

Answer 74

grantor trust

grantor, property

Question 75

Blake transferred a corporate bond with a face amount and fair market value of $20,000 to a trust for the benefit of his 16-year-old child. Annual interest on this bond is $2,000, which is to be accumulated in the trust and distributed to the child on reaching the age of 21. The bond is then 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 $8,710. What is the amount of the gift that is excludable from taxable gifts?

Answer 75

$0
The annual exclusion only applies to a “gift of a present interest.

Both the property and its income may be spent by or for the benefit of the minor before she or he reaches 21 years old…..
. Since this question states that only the interest income is to go to the minor (not the corporate bond itself), it does not qualify for the annual exclusions. None of the gift ($8,170) is excludable from taxable gifts.

Question 76

Mike and Carol, a married couple, have two assets at the time of Mike’s death: a $10,000,000 life insurance policy owned by Mike naming Carol as the sole beneficiary, and $8,000,000 of real estate owned by the couple as joint tenants with right of survivorship. What is the amount of the marital deduction to Mike’s estate for these two assets?

Answer 76

$14M

The real estate that is owned by Mike and Carol as joint tenants must also be included in Mike’s gross estate, but only his share or $4,000,000. When the life insurance policy of $10,000,000 is combined with Mike’s percentage ownership of the real estate of $4,000,000, Mike has a gross estate of $14,000,000

Question 77

Murry created a $1,000,000 trust that provided his brother with an income interest for 10 years, after which the remainder interest passes to Murry’s sister. Murry retained the power to revoke the remainder interest at any time. The income interest was valued at $600,000. The income interest:

is a gift of present interest…. WHY

Answer 77

The income interest is a gift of a present interest because the gift is complete and enjoyment is immediate. The grantor only retained the power to revoke the remainder interest. An unrestricted right to the immediate use of the income from property qualifies as a present interest. Only a present interest qualifies for the $15,000 annual exclusion from gift tax.

Question 78

Generally, an estate is liable for which debts owed by the decedent at the time of death?

All of the decedent’s debts
Only debts secured by the decedent’s property
Only debts covered by the Statute of Frauds
None of the decedent’s debts

Answer 78

All of decedent’s debts

Dying does not eliminate any debts of the deceased. The estate takes on the responsibility of paying all of the decedent’s open debts before any assets are distributed to the beneficiaries.

Question 79

Only a ___interest qualifies for the $15,000 annual exclusion from gift tax.

A gift that is not complete is not subject to ___

Are future interests subject to the gift tax?

Answer 79

present

gift tax.

Yes, but w/p tje ammia; exc;isopm pr ;ofeto,e exe,[topm

Question 80

A husband and wife agree to split monetary gifts to their relatives. The husband gives his daughter $22,500, and the wife gives her niece $19,000. Assume that the annual exclusion is $15,000. What amount is the taxable gift for the husband and wife?

Answer 80

$0

As a result, the spouses do not have a taxable gift, as computed:

Husband’s daughter $ 22,500
Wife’s niece 19,000
Gross gifts $ 41,500
Less exclusions 60,000 ($15,000 × 2) + ($15,000 × 2)
Taxable gifts $(18,500)($0 taxable)

Question 81

Kate Lemon purchased a diamond pin for $6,000 in Year 1. In Year 10, when the value was $11,000, she gave it to her daughter, Ann. No gift tax was paid. If Ann sells the pin for $12,000, Ann’s recognized gain is:

Answer 81

$6K

The basis of property acquired by gift is the donor’s basis if the property is sold at a gain:

$12,000 sale - $6,000 basis (cost to Kate) = $6,000 taxable gain for Ann

Question 82

The basis of property acquired by gift is the ___if the property if sold at a gain:

Federal income taxes and federal estate tax are not deductible by the estate T/F

Answer 82

donor’s basis

True

Question 83

The federal estate tax may be reduced by a credit for:

foreign death taxes.
tax on prior transfers.

Answer 83

Death & Taxes are reduced

Question 84

When Jim and Nina became engaged in April of Year 1, Jim gave Nina a ring that had a fair market value of $50,000. After their wedding in July of Year 2, Jim gave Nina $75,000 in cash so that Nina could have her own bank account. Both Jim and Nina are U.S. citizens. What was the amount of Jim’s marital deduction?

Answer 84

$75K

Any transfer of assets after the marriage of Jim and Nina is considered a marital deduction. The gift of a ring for the engagement happened prior to the marriage and thus does not qualify.

Question 85

Don and Linda Grant, U.S. citizens, were married for the all of Year 20. In Year 20, Don gave a $60,000 cash gift to his sister. The Grants made no other gifts Year 20. They each signed a timely election to treat the $60,000 gift as one made by each spouse. Disregarding the unified credit and estate tax consequences, what amount of the Year 20 gift is taxable to the Grants for gift tax purposes? (Assume the annual exclusion is $15,000.)

Answer 85

$30K

Don gave a $60,000 cash gift to his sister. Since they each signed a timely election to treat the gift as one made by each spouse, Don can reduce the amount of the gift subject to gift tax by both his $15,000 exemption and his wife’s $15,000 exemption for a combined total of $30,000.

Question 86

A taxpayer is allowed an annual exclusion of $15,000 PER donee during the 2018 tax year T/F

Answer 86

True

Question 87

Jan, an unmarried individual, gave the following outright gifts in 2018:

Donee Amount Use by Donee
Jones $20,000 Down payment on house
Craig 20,000 College tuition
Kande 5,000 Vacation trip
Jan’s 2018 exclusions for gift tax purposes total:

Answer 87

$15k for Jones
$15k For Craig (Since not directly paid to college)
$5k for Kande

Question 88

The generation-skipping transfer tax is imposed:

instead of the gift tax.
instead of the estate tax.
as a separate tax in addition to the gift and estate taxes.
on transfers of future interest to beneficiaries who are more than one generation above the donor’s generation.

Answer 88

as a separate tax in addition to the gift and estate taxes.

In order to keep families from avoiding the federal gift and estate tax (called the unified transfer tax) by passing wealth to younger generations (for example, the father would pass wealth directly to his great-grandchild), the Internal Revenue Code imposes an additional generation-skipping transfer tax (GSTT).

Question 89

When a grantor makes a gift and sets up a trust that is revocable, the grantor has maintained too much power and control over the assets. T/F

Such a revocable trust must be included in the grantor’s gross estate when the grantor dies. T/F

Answer 89

True

True

Question 90

Items included in the gross estate include:

1. ) one-half of joint ownership _;
2. ) ___ transfers of property by the decedent where certain privileges were retained;
3. ) properties in which the decedent possessed a general power of ___;
4. ) ___insurance proceeds payable to the estate;
5. ) income earned by the decedent at the time of ___;
6. ) ___paid on gifts made within three years of death.

Answer 90

property
lifetime
appointment
life 
death
Gift taxes