Real Estate Planning - Chapter 5

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.

If the overall objective of a client is federal gross estate reduction, making cash gifts would not be the correct approach. Cash gifts are subject to gift tax, and the value of the gift would still be included in the client's gross estate for federal estate tax purposes. To achieve federal gross estate reduction, alternative strategies such as setting up trusts or utilizing other estate planning tools would be more appropriate.

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.

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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The donor is primarily responsible for the gift tax.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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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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.

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.

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.

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.

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.

Property E should be gifted to Landon's father, Preston, because the property is income-producing and Landon's father is likely to be in a lower marginal income tax bracket than Landon. By default, Property D should be gifted to Landon's sister, Tabitha. Property B should be gifted to Landon's daughter, Kelcie, because the property with the highest potential for appreciation should be donated to the youngest donee. Property A should be donated to The United Way because it has experienced the greatest appreciation. Landon should keep Property C because only he can sell Property C and recognize a capital loss.

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.

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.

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."

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.