Gift Tax Flashcards
(30 cards)
Who is the donor in a gift transaction?
The person making the gift; must be legally competent and intend to make a voluntary transfer.
Who is the donee in a gift transaction?
The recipient of the gift; must be competent, take delivery, and accept the property.
What is the definition of a gift for tax purposes?
A voluntary transfer of property made without full consideration (not an exchange for fair value).
What are the types of gifts?
Direct Gift: Property given directly to the donee.
Indirect Gift: Transfer benefits the donee (e.g., paying someone else’s debt).
Complete Gift: Donor gives up all control and interest.
Incomplete Gift: Donor retains some control or interest.
Reversionary Interest: Donor retains right for property to revert back.
Net Gift: Donee agrees to pay the gift tax.
How are gifts valued for tax purposes?
At fair market value (FMV) on the date of the gift.
How are different types of assets valued?
Real estate: Requires appraisal
Publicly traded securities: Average of high and low trading prices on the gift date
Bonds: Present value of expected future payments
Discounts: May apply for lack of marketability, liquidity, or control
What is the annual exclusion for gift tax?
The amount each individual can gift per donee each year tax-free; must be a present interest. ($18000 2024, and $19000 2025)
What happens if the annual exclusion is not used?
It is lost for that year.
What is the “super annual exclusion”?
A higher annual exclusion amount for gifts to non-U.S. citizen spouses.
What is a split gift?
Married couples can elect to “split” gifts, doubling the annual exclusion per donee; requires IRS Form 709
When is split-gift election unnecessary?
For community property
What is the lifetime exemption (Applicable Exclusion Amount)?
The total amount a person can transfer tax-free during life and at death; unified with the estate tax exemption. ($13.61 million 2024, and $13.99 million 2025)
What reduces the lifetime exemption?
Taxable gifts
What is a present interest?
Unrestricted right to mmediate use or enjoyment of property; qualifies for annual exclusion.
What is a future interest?
Right to property is delayed or contingent; does NOT qualify for annual exclusion.
What is the Crummey provision?
Allows trust beneficiaries a limited right to withdraw contributions, converting future interest for annual exclusion.
What is the 5/5 lapse rule?
If withdrawal right lapses for more than $5000 or 5% of trust assets. a taxable gift occurs.
What payments are not subject to gift tax?
Payments made directly to educational institutions for tuition or to medical providers for qualifying expenses.
Are legal support or divorce settlements considered gifts?
No. Payments for legal support (e.g. child support) and divorce-related property settlements are not gifts.
Are business transfers gifts?
Presumed to be compensation unless de minimis (Like giving a watch to a homie)
What is the unlimited marital deduction?
Unlimited tax-free transfers between U.S. citizen spouses.
What is the charitable deduction?
Unlimited deduction for gifts to qualified charities
What is “carryover basis”?
Donee generally takes donor’s adjusted basis and holding period.
What is the dual or double basis rule?
If FMV at gift is less than donor’s basis:
For gains: Use donor’s basis
For losses: Use FMV at date of gift
