Real Estate Planning - Chapter 5

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• 1.

Grandmother Joes contributed \$2.5mm to a revocable trust.  She has a life expectancy of 24 years and she will receive an 8% per year annuity from the trust.  At her ddeather, the corpus will be paid to her granddaughter, Lisa.  What is Grandmother Jones's taxable gift?

• A.

\$0

• B.

\$2,094,752

• C.

\$2,489,000

• D.

\$2,500,000

A. \$0
Explanation
The correct answer is \$0 because a revocable trust is not considered a completed gift for tax purposes. Since Grandmother Jones retains control and ownership of the assets in the trust, there is no taxable gift.

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• 2.

Crystal loans Holly \$650k, so that Holly can buy a home.  Holly signs a note, with a term of 5 years, promising to repay the loan.  The home is the collateral, but because Chrystal and Holly have been friends since childhood, Crystal does not charge Holly interest.  Which of the following statements is true?1) The imputed interest is considered a taxable gift from Crystal to Holly.2) The imputed interest is taxable income on Crystal's income tax return.3) The imputed interest is an interest expense deduction for Crystal.4) Holly can deduct the imputed interest on her income tax return.

• A.

2 only

• B.

2 and 4

• C.

1, 2, and 4

• D.

1, 2, 3, and 4

C. 1, 2, and 4
Explanation
The imputed interest is considered a taxable gift from Crystal to Holly because she is not charging any interest on the loan. This gift is taxable and should be reported as such. Additionally, the imputed interest is taxable income on Crystal's income tax return because it is considered as income that she could have earned if she had charged Holly interest. Finally, Holly can deduct the imputed interest on her income tax return because it is considered as interest expense. Therefore, the correct answer is 1, 2, and 4.

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• 3.

Timothy made the following transfers to his only daughter during the year:1) A bond portfolio with an adjusted basis of \$130k and a fair market value of \$140k.2) 2,000 shares of RCM Corp. stock with an adjusted basis of \$126k and a FMV of \$343k.3) An automobile with an adjusted basis of \$15k and a fair market value of \$9k.4) An interest-free loan of \$2k for a personal computer on January 1st.  The applicable federal rate for the tax year was 8%.What is the value of Timothy's gross gifts for this year?

• A.

\$271,000

• B.

\$492,000

• C.

\$494,000

• D.

\$498,000

B. \$492,000
Explanation
Timothy's gross gifts for the year include the fair market value of the bond portfolio (\$140k), the fair market value of the RCM Corp. stock (\$343k), and the fair market value of the automobile (\$9k). Additionally, the interest-free loan of \$2k is also considered a gift. Therefore, the total value of Timothy's gross gifts for the year is \$140k + \$343k + \$9k + \$2k = \$494k. However, since the loan is subject to the applicable federal rate of 8%, the value of the loan is adjusted to \$2k * 8% = \$160. Therefore, the final value of Timothy's gross gifts for the year is \$494k - \$160 = \$492,000.

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• 4.

In the current year, Jerry loaned his daughter, Charisse, \$14,000 to purchase a new car.  The loan was payable on demand, but there was no stated interest rate.  The applicable federal rate for the current year was 10%, and Charisse had \$900 of net investment income for the year.  For gift tax purposes with regards to this loan, how much has Jerry gifted Charisse during the current year?

• A.

\$0

• B.

\$900

• C.

\$1,500

• D.

\$15,000

A. \$0
Explanation
Jerry has not gifted Charisse any amount during the current year. This is because there was no stated interest rate on the loan and the applicable federal rate for the current year was 10%. The gift tax rules require that if a loan is made with no stated interest rate or an interest rate below the applicable federal rate, then the lender is deemed to have made a gift to the borrower equal to the forgone interest. In this case, since there was no interest charged, there is no gift made by Jerry to Charisse. Therefore, the correct answer is \$0.

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• 5.

• A.

Appreciation on property after the date of the gift will not be subject to gift tax and will not be included in the donor's gross estate.

• B.

Payments directly to his grandchildren for their education over the annual exclusion amount will not be taxable.

• C.

Annual exclusion gifts will not be subject to the gift tax and will not be included in the donor's gross estate.

• D.

The donee of income producing property will have to recognize the post-gift income from the property on the donee's income tax return.

B. Payments directly to his grandchildren for their education over the annual exclusion amount will not be taxable.
Explanation
The correct answer is "Payments directly to his grandchildren for their education over the annual exclusion amount will not be taxable." This statement is not true because payments directly to grandchildren for their education over the annual exclusion amount are considered taxable gifts and may be subject to gift tax.

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• 6.

Carl would like to make a gift to his son, but does not want the value of the gift and the associated gift tax to total an amount greater than \$100,000.  Carl's cousin has told him about the net gift, but Carl has come to you for clarification.  Which of the following statements from Carl's cousin is correct?

• A.

A net gift does not qualify for the annual exclusion because it is a gift of a future interest.

• B.

Carl must prepay the gift tax due when he makes a net gift.

• C.

A net gift requires Carl's son to disclaim the interest in the gift.

• D.

Carl will have taxable income to the extent the gift tax paid is greater than his adjusted basis in the gifted property.

D. Carl will have taxable income to the extent the gift tax paid is greater than his adjusted basis in the gifted property.
• 7.

Which of the following is eligible for the annual exclusion?

• A.

Frank designates his daughter, Holly, beneficiary of his 401(k) plan.

• B.

Frank designates his wife, Betty, as beneficiary of his life insurance policy.

• C.

Frank funds an irrevocable trust with \$1,100,000 for the benefit of his son. The terms of the trust allow a payout at the discretion of the trustee.

• D.

Frank funds an irrevocable life insurance trust with the amount necessary to pay the premiums of the policy. The beneficiaries can take a distribution equal to the contribution each year.

D. Frank funds an irrevocable life insurance trust with the amount necessary to pay the premiums of the policy. The beneficiaries can take a distribution equal to the contribution each year.
• 8.

After reading an estate planning article in a popular magazine, Vaughn has decided to take action to reduce his gross estate by making annual gifts to his 4 kids, 8 grandchildren, and 4 great-grandchildren.  Vaughn has discussed the gifting strategy with his wife, Rebecca, and provided it does not result in use of any of her applicable gift tax credit, she has agreed to split each gift.  Vaughn does not want to use his applicable gift tax credit either.  If Vaughn carries the plan out for 5 years, how much can he gift in totoal while meeting Rebecca's requirement?  Assume the 2014 exclusion amounts.

• A.

\$208,000

• B.

\$1,120,000

• C.

\$2,080,000

• D.

\$2,240,000

D. \$2,240,000
Explanation
Vaughn can gift a total of \$2,240,000 while meeting Rebecca's requirement. This is because Vaughn can make annual gifts to his children, grandchildren, and great-grandchildren without using his applicable gift tax credit. By splitting each gift with Rebecca, they can effectively double the amount they can gift each year. Therefore, over 5 years, they can gift a total of \$2,240,000 without utilizing their gift tax credits.

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• 9.

Mary and Emile would like to give the maximum possible gift that they can to their son without having to pay gift tax.  Mary and Emile have never filed a gift tax return and lie in a community-property state.  How much can they transfer in 2014 to their son free of gift tax?

• A.

\$28,000

• B.

\$2,081,800

• C.

\$5,368,000

• D.

\$10,708,000

D. \$10,708,000
Explanation
Mary and Emile can transfer \$10,708,000 to their son free of gift tax because in 2014, the annual gift tax exclusion was \$14,000 per person. Since Mary and Emile are a married couple, they can combine their exclusions and gift up to \$28,000 per year to each recipient without having to pay gift tax. Additionally, in a community-property state, all assets and income acquired during the marriage are considered community property and are owned equally by both spouses. Therefore, Mary and Emile can each gift \$14,000 to their son, resulting in a total gift of \$28,000, and since they are a married couple, they can double this amount to \$56,000. By multiplying this annual exclusion by the number of years they have not filed a gift tax return, they can transfer a maximum of \$10,708,000 to their son without incurring gift tax.

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• 10.

Celeste and Raymond have been married for 29 years.  Last year, Raymond sold his extremely successful automotive repair shop and his net worth now exceeds \$10MM dollars.  Celeste and Raymond have twin daughters, Kelly and Shelly, who will be 35 next month.  Celeste and Raymond, neither of whom have given any gifts in the past, would like to give their daughters the maximum amount of cash possible without paying any  gift tax.  How much can Celeste and Raymond give to Kelly and Shelly during 2014?

• A.

\$14,000

• B.

\$28,000

• C.

\$5,368,000

• D.

\$10,736,000

D. \$10,736,000
Explanation
Celeste and Raymond can give a maximum amount of \$10,736,000 to their daughters during 2014 without paying any gift tax. This is because the annual gift tax exclusion for 2014 is \$14,000 per person. Since they are a married couple, they can combine their exclusions and give up to \$28,000 to each recipient without incurring any gift tax. They have two daughters, so they can give a total of \$56,000 to both daughters. However, they have not given any gifts in the past, so they can also take advantage of the lifetime gift tax exemption, which is \$5,340,000 for 2014. Therefore, they can give an additional \$5,340,000 to their daughters without paying any gift tax. Adding the \$56,000 from the annual exclusion, the total amount they can give is \$5,396,000. However, Raymond's net worth exceeds \$10MM dollars, so they can give the maximum amount possible, which is \$10,736,000.

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• 11.

Deborah provides the following list to her CPA who is preparing her gift tax return.  Which of the following will Deborah's CPA include as a taxable gift on Deborah's gift tax return?

• A.

Payment to grandmother of \$20,000 to help her with her medical bills.

• B.

Payment to Doctor's Hospital for \$35,000 to cover the medical bills of a friend.

• C.

Payment to Northshore Medical School for \$17,000 to cover nephew's tuition.

• D.

Payment to child of \$6,000 that represents legal support.

A. Payment to grandmother of \$20,000 to help her with her medical bills.
Explanation
The payment to Deborah's grandmother of \$20,000 to help her with her medical bills will be included as a taxable gift on Deborah's gift tax return. This is because any transfer of money or property to an individual without receiving anything of equal value in return is considered a gift for tax purposes. In this case, Deborah made a payment to her grandmother to help with her medical bills, which qualifies as a gift. The other payments mentioned in the list, such as the payment to Doctor's Hospital and Northshore Medical School, are not considered taxable gifts as they are made for the benefit of others and not directly to individuals. The payment to her child for legal support may also not be considered a taxable gift if it is part of a legal obligation or support agreement.

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• 12.

Celeste made the following transfers during 2014:1) Her friend, Paul, needed \$24,000 to begin law school.  Celeste gave Paul the cash.2) An alimony payment of \$14,000 to her ex-husband.3) She paid \$15,000 to Diamond Shores Hospital for her friend Jackie's medical bills.What is the amount of Celeste's taxable gifts?

• A.

\$10,000

• B.

\$12,000

• C.

\$27,000

• D.

\$50,000

A. \$10,000
Explanation
Celeste's taxable gifts are \$10,000. This is because only the gift to her friend Paul, which was \$24,000, is considered a taxable gift. The alimony payment and the payment for her friend Jackie's medical bills are not considered taxable gifts. Therefore, the total amount of Celeste's taxable gifts is \$24,000 - \$14,000 - \$15,000 = \$10,000.

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• 13.

While completing Joelle's tax returns, Joelle's CPA asked her if she made any gifts during the year.  Joelle faxed her the following information.  Of the following, which would not require the filing of a gift tax return?

• A.

Joelle created a revocable trust under the terms of which her son is the income beneficiary for his life and her grandson is the remainder beneficiary. Joelle created the trust with a \$6,000,000 contribution and the trust made an income distribution in the current year.

• B.

Joelle opened a joint checking account in the name of herself and her sister with \$75,000. The day after Joelle opened the account, her sister withdrew \$35,000 to purchase a car.

• C.

Joelle created an irrevocable trust giving a life estate to her husband and a remainder interest to her daughter. Joelle created the trust with a \$1,000,000 contribution.

• D.

Joelle gave her husband one half of an inheritance she received from her uncle. The inheritance was \$3,000,000.

D. Joelle gave her husband one half of an inheritance she received from her uncle. The inheritance was \$3,000,000.
Explanation
The gift of one half of an inheritance received from her uncle would not require the filing of a gift tax return. This is because gifts between spouses are generally not subject to gift tax.

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• 14.

During 2014, Janice made the following transfers.  What is the a amount of her total taxable gifts for 2014?1) Janice gave \$10,000 to her boyfriend so he could buy a new car.2) Janice's neighbor Judy needed \$15,000 to pay for her knee surgery, Janice paid Doctors-R-US Hospital directly.3) Her nephew began attending Georgetown Law School this year.  Janice made the initial yearly tuition payment of \$25,000 directly to Georgetown Law School during 2014.

• A.

\$0

• B.

\$14,000

• C.

\$15,000

• D.

\$50,000

A. \$0
Explanation
The total taxable gifts for 2014 is \$0 because none of the transfers listed are considered taxable gifts. The \$10,000 given to her boyfriend is a gift, but it is not taxable because it falls below the annual gift tax exclusion amount. The \$15,000 paid directly to Doctors-R-US Hospital for her neighbor's surgery is not a gift because it is a payment for a service. The \$25,000 payment to Georgetown Law School for her nephew's tuition is considered an educational expense and is not subject to gift tax. Therefore, the total taxable gifts for 2014 is \$0.

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• 15.

Brent and his wife live in a common law (separate property) state.  Each year, Brent makes gifts equal to the annual exclusion to his three children.   During the year, he comes to you looking for a way to transfer more than \$75,000 each year to his kids without using his applicable gift tax credit or paying any gift tax.  All of the following statements regarding gift-splitting, are true, except:

• A.

If Brent's wife would agree to elect gift splitting, Brent could transfer \$84,000 per year to his kids without utilizing his applicable gift tax credit or paying any gift tax.

• B.

Even if Brent's wife elected to split gifts, only Brent's gifts would be split.

• C.

Even though all of the gifts are less than the annual exclusion, and not taxable, Brent will have to file a gift tax return if his wife agrees to gift split.

• D.

If a couple elects to split gifts, all gifts made during the year (while the couple is married) by either spouse must be split.

B. Even if Brent's wife elected to split gifts, only Brent's gifts would be split.
Explanation
If a couple elects to split gifts, both spouses can split their gifts, not just one spouse. This means that if Brent's wife agrees to gift splitting, both Brent and his wife's gifts would be split, allowing them to transfer a total of \$168,000 per year to their kids without utilizing their applicable gift tax credit or paying any gift tax.

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• 16.

During the year, Sean made the following gifts to his daughter:1) An interest-free loan of \$6,000 to purchase an SUV.  The applicable federal rate was 6%.  The loan has been outstanding for two years.2) A corporate bond with an adjusted basis of \$14,000 and a fair market value of \$16,000.3) A portfolio of stock with an adjusted basis of \$10,000 and a fair market value of \$25,000.Seans's wife agrees to elect gift-splitting for the year, but she did not make any gifts of her own.  What is the amount of total taxable gifts made by Sean during the year?

• A.

\$6,500

• B.

\$7,500

• C.

\$7,680

• D.

\$20,680

A. \$6,500
Explanation
The interest-free loan is not subject to gift tax because the loan is below \$10,000 and meets the exclusions from imputed interest rules. To calculate Sean's taxable gifts, first add the fair market value of the transfers subject to gift tax and reduce by the annual exclusions and the gift-splitting. The calculation is as follows:
The sum of the fair market values of the taxable transfers: \$25,000 + \$16,000 = \$41,000.
The allocation for gift-splitting: \$41,000/2 = \$20,500.
The reduction for the annual exclusion: \$20,500 - \$14,000 = \$6,500

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• 17.

Donna and Daniel have lived in Louisiana their entire marriage.  Currently, their combined net worth is \$4MM and all of their assets are community property.  After meeting their financial advisor, Donna and Daniel begin a plan of lifetime gifting to reduce their gross estates.  During 2014, they made the following cash gifts:Son                 \$80,000Daughter         \$160,000Republican Natl. Committee   \$75,000Granddaughter    \$15,000What is the amount of the taxable gifts to be reported by Donna?

• A.

\$35,500

• B.

\$92,000

• C.

\$127,500

• D.

\$255,000

B. \$92,000
Explanation
Because the assets are community property, the gifts are deemed to be made 50% by each spouse. Gift-splitting is not an issue. The cash payment to the Republican National Committee is not a gift for gift tax purposes. Donna's taxable gifts are calculated as follows:

For the son: Donna's total gifts were \$40,000; her annual exclusion is \$14,000 so the total taxable gift was \$26,000.
For the daughter, Donna's total gift was \$80,000, her annual exclusion was \$14,000, so the total taxable gift was \$66,000.
For the granddaughter, Donna's total gift was \$7,500, less her annual exclusion of \$7,500, which leaves \$0 as her taxable gift.
The total gifts Donna made were \$127,500, less a total of \$35,500 for the annual exclusion, leaves \$92,000 for Donna's taxable gifts in 2014.

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• 18.

Jason and his wife, Maria, live in Texas with their two minor children.  All of their property is owned as community property.   During the year, Jason gave his brother a \$13,000 car, his friend a \$4,000 watch, and his dad a \$45,000 fishing boat.  What is the total amount of split gifts?

• A.

\$0

• B.

\$16,000

• C.

\$31,000

• D.

\$62,000

A. \$0
Explanation
Because the question asked the amount of the gift splitting, the answer is \$0. Community property assets are not eligible for gift splitting because they are viewed as being owned one-half by each spouse. \$31,000 (1/2 of the total of all gifts during the year) would be attributable to Maria as gifts made by her during the year.

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• 19.

Which of the following statements about James and Carly who are married, regarding the rules of the federal gift tax return is incorrect?

• A.

James made a gift to his brother of \$20k from his separate property. Carly, James' wife, agreed to elet gift-splitting. Only James will be required to file a gift tax return.

• B.

Carly made a gift to her sister of \$18k from community property. Because it is community property, Carly and James are each deemed to have made a gift of \$9k.

• C.

A gift tax return is due 3 1/2 months after the end of the donor's tax year-end but is extended by extending the personal return.

• D.

Carly and James filed an extension to file their federal income tax return. To extend any gift tax returns due for the year, Carly and James must file a gift tax return extension.

D. Carly and James filed an extension to file their federal income tax return. To extend any gift tax returns due for the year, Carly and James must file a gift tax return extension.
Explanation
Carly and James filing an extension for their federal income tax return does not require them to file a gift tax return extension. The question states that only James will be required to file a gift tax return, so Carly does not need to file a gift tax return extension.

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• 20.

Randy transferred property with a fair market value of \$56k to his brother, Robbie.  Randy's adjusted basis in the property was \$23k.  Of the following statements related to this transfer, which is correct?

• A.

Robbie has an adjusted basis in the property of \$0

• B.

Randy must recognize a capital gain on this transfer of \$33k.

• C.

If Robbie subsequently sells the property for \$60k, he will have a capital gain of \$4k.

• D.

Randy has a taxable gift to Robbie of \$42k.

D. Randy has a taxable gift to Robbie of \$42k.
Explanation
Randy transferred property to his brother, Robbie, with a fair market value of \$56k. Randy's adjusted basis in the property was \$23k. This means that Randy's cost or investment in the property was \$23k. When Randy transferred the property to Robbie, he essentially gave Robbie a gift. The gift amount is calculated by subtracting Randy's adjusted basis from the fair market value of the property, which is \$56k - \$23k = \$33k. However, the gift tax laws require Randy to pay taxes on the gift amount. Therefore, Randy has a taxable gift to Robbie of \$42k, which is the gift amount plus the taxes owed on the gift.

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• 21.

Stephanie received 100 shares of ZYX Corporation from her aunt with an adjusted basis of \$60k and a fair market value of \$30k as of the date of the gift.  Her Aunt paid \$1,500 of gift tax.  Stephanie sold the stock for \$45k.  What is Stephanie's recognized gain or loss?

• A.

No gain or loss.

• B.

\$15,000 gain

• C.

\$15,000 loss

• D.

\$13,500 loss

A. No gain or loss.
Explanation
Stephanie received the shares of ZYX Corporation as a gift from her aunt. According to the given information, the adjusted basis of the shares is \$60k and their fair market value is \$30k. When property is received as a gift, the recipient's basis is generally the same as the donor's adjusted basis. Since the fair market value of the shares is less than their adjusted basis, Stephanie's recognized gain or loss is zero. Therefore, the correct answer is "No gain or loss."

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• 22.

Jack gave his nephew, Stephen, 1,000 shares of ABC Corporation.  Jack had an adjusted basis of \$10,000 for all 1,000 shares and the fair market value at the date of the gift was \$45,000.  Jack paid gift tax of \$9,000 on the gift to Stephen.  If Stephen sells the stock three days after receiving the gift for \$46,000, what is his capital gain/loss?  (Assume Jack had already made transfers to Stephen during the year to utilize the annual exclusion.)

• A.

No gain or loss.

• B.

\$1,000 gain

• C.

\$29,000 gain

• D.

\$36,000 gain

C. \$29,000 gain
Explanation
Stephen's capital gain is \$29,000. The capital gain is calculated by subtracting the adjusted basis from the selling price. In this case, the adjusted basis is \$10,000 and the selling price is \$46,000. Therefore, the capital gain is \$46,000 - \$10,000 = \$36,000. However, since Jack paid gift tax of \$9,000 on the gift, this amount is added to the capital gain, resulting in a total capital gain of \$36,000 + \$9,000 = \$29,000.

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• 23.

If John pays Carol's car note, and there is no consideration from Carol to John, John has made a gift to Carol.

• A.

True

• B.

False

A. True
Explanation
If John pays Carol's car note without expecting anything in return, it can be considered a gift. In this scenario, there is no consideration from Carol to John, meaning Carol is not providing anything of value in exchange for John's payment. Therefore, it can be concluded that John has indeed made a gift to Carol.

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• 24.

The lender of a \$150k no-interest gift loan will always impute interest.

• A.

True

• B.

False

A. True
Explanation
The statement is true because the lender of a no-interest gift loan is still considered to have imputed interest. Imputed interest refers to the interest that is deemed to have been earned on a loan, even if no actual interest is charged. In the case of a no-interest gift loan, the lender is essentially giving up the opportunity to earn interest on the loan amount, and this forgone interest is imputed. Therefore, even though no interest is actually charged, the lender is still considered to have imputed interest.

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• 25.

The donee of a gift is primarily liable for any gift tax due on the transfer.

• A.

True

• B.

False

B. False
Explanation
The donor is primarily responsible for the gift tax.

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• 26.

Generally, gift tax is calculated based on the fair market value of the property at the date of the gift.

• A.

True

• B.

False

A. True
Explanation
Gift tax is a tax imposed on the transfer of property or assets as a gift. The fair market value of the property at the date of the gift is used to determine the gift tax liability. This means that the value of the gift at the time it is given is considered for tax purposes, rather than the original cost or the future value. Therefore, the statement that gift tax is calculated based on the fair market value of the property at the date of the gift is true.

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• 27.

A donor's gross estate will not include the fair market value of lifetime gifts that qualify for the annual exclusion.

• A.

True

• B.

False

A. True
Explanation
The correct answer is true because the annual exclusion allows individuals to give a certain amount of money or property to another person without it being subject to gift tax. These lifetime gifts are not included in the donor's gross estate because they have already been transferred to the recipient during the donor's lifetime. Therefore, the fair market value of these gifts does not need to be included when calculating the donor's estate for tax purposes.

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• 28.

If the annual exclusion is not used during the year, it does not carryover to the following year.

• A.

True

• B.

False

A. True
Explanation
If the annual exclusion is not used during the year, it means that the individual did not utilize the maximum amount of gift-giving allowed without incurring gift tax. This exclusion is specific to each year and cannot be carried over to the following year. Therefore, if the exclusion is not used within a given year, it cannot be saved or accumulated for future use. This implies that the statement is true.

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• 29.

If a donor gifts \$14,000 of community property to his niece, the donor must file a gift tax return.

• A.

True

• B.

False

B. False
Explanation
A gift tax return is not required if the donor gifts \$14,000 or less per year to an individual. In this case, the donor is gifting \$14,000, which falls within the annual exclusion limit. Therefore, the donor does not need to file a gift tax return.

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• 30.

An individual who gifts a total of \$100,000 split equally between eleven donees is not required to file a gift tax return.

• A.

True

• B.

False

A. True
Explanation
An individual who gifts a total of \$100,000 split equally between eleven donees is not required to file a gift tax return because the annual exclusion for gifts is \$15,000 per recipient. Since the gift is split equally among eleven donees, each receiving \$9,090.91, it falls below the annual exclusion amount for each recipient. Therefore, the individual does not need to file a gift tax return.

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• 31.

The amount of annual exclusion for transfers to a noncitizen spouse is \$145,000.

• A.

True

• B.

False

A. True
Explanation
The correct answer is true because according to the tax laws in the United States, there is an annual exclusion amount for transfers to a noncitizen spouse, which is currently set at \$145,000. This means that any transfers made to a noncitizen spouse up to this amount are not subject to gift tax.

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• 32.

Qualified transfers are limited to the annual exclusion amount.

• A.

True

• B.

False

B. False
Explanation
This statement is false. Qualified transfers are not limited to the annual exclusion amount. Qualified transfers refer to certain types of transfers that are exempt from gift tax, such as transfers for medical or educational expenses made directly to the provider. These transfers can exceed the annual exclusion amount without incurring gift tax.

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• 33.

If a payment is made directly to an educational institution, the portion of the payment that applies to room and board is not excluded from gift tax.

• A.

True

• B.

False

A. True
Explanation
If a payment is made directly to an educational institution, the portion of the payment that applies to room and board is not excluded from gift tax. This means that if someone pays for room and board expenses directly to the educational institution on behalf of another person, it will be considered a taxable gift and may be subject to gift tax.

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• 34.

Reimbursing an individual for medical expenses that he paid directly to the hospital is a qualified transfer.

• A.

True

• B.

False

B. False
Explanation
The statement is false because reimbursing an individual for medical expenses that he paid directly to the hospital is not considered a qualified transfer. Qualified transfers typically refer to transfers of assets that are exempt from gift or estate taxes, such as transfers to a spouse or a charity. Reimbursing medical expenses would not fall under this category.

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• 35.

To be eligible for the unlimited marital deduction, the donee spouse must be a citizen of the United States.

• A.

True

• B.

False

A. True
Explanation
The unlimited marital deduction allows a spouse to transfer an unlimited amount of assets to their spouse, free from estate and gift taxes. However, to qualify for this deduction, the donee spouse must be a citizen of the United States. This requirement ensures that only U.S. citizens can benefit from the tax advantages provided by the unlimited marital deduction. Therefore, the statement that the donee spouse must be a citizen of the United States is true.

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• 36.

If at the date of a gift, the fair market value of the gifted property is greater than the donor's adjusted basis in the gifted property, the donee's basis in the property received will be the fair market value at the date of the gift.

• A.

True

• B.

False

B. False
Explanation
The explanation for the given correct answer, which is False, is that the donee's basis in the property received will not be the fair market value at the date of the gift if the fair market value of the gifted property is greater than the donor's adjusted basis. Instead, the donee's basis will be the donor's adjusted basis at the time of the gift.

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• 37.

If at the date of a gift, the fair market value of the gifted property is less than the donor's adjusted basis in the gifted property, the donee will be subject to the double-basis rule.

• A.

True

• B.

False

A. True
Explanation
If the fair market value of the gifted property is less than the donor's adjusted basis at the time of the gift, the donee will be subject to the double-basis rule. This means that for tax purposes, the donee's basis in the gifted property will be the lower of the fair market value or the donor's adjusted basis. This rule is applied to prevent the donee from claiming a loss on the property if they were to sell it for less than the donor's adjusted basis. Therefore, the statement is true.

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• 38.

• A.

True

• B.

False