Gift Taxation

Question 1

Gift Tax General

Answer 1

Separate from Income Tax

• Gift tax is paid by giver
• to help reduce estate tax on death
• can use unified credit if not paying gift tax
• unified credit is per lifetime

Not considered gifts:
- payments on behalf of minor family members for food, clothing, shelter or medical care (unlimited - not subject to additional tax)
- payments to employee (wages)
- property settlements in divorce (unlimited - no gift tax)
- political contributions
- assets in revocable trust
- donations to charities (unlimited)
- gifts between spouses (tax free)
- donations of personal services ie: time

Yes gifts:
- loans to family below market interest rate
- debt forgiveness to family members
- sales below market prices to family
- placing assets into an irrevocable trust for the benefit of another

Question 2

Property as a Gift

Answer 2

• No income tax on the effect of the gift, at sale will determine basis
• gifter may have to pay tax

Sale of Gift -
- if sold above the prior owner’s basis: use prior owner’s basis (report gain)
- if sold for less than prior owner basis: lower of his basis or FV at the time of gift (report the loss)
- if sold for in between basis and FV at time of gift: no gain or loss
- the value went up in value before you get it: you automatically get the prior owner basis (built in gain)

Holding Period:
- If using prior owner’s basis, you use the prior owner’s holding period
- if not, your holding period starts on first day of ownership

Question 3

Inherited Property

Answer 3

• Automatically gets the long term holding period

‘date of conveyance’ - date they get their hands on the property

Basis:
- Assigned at FMV at date of person’s death

Executor decides:
- date of death or AVD (6 months after death)
- if AVD is chosen, 6 mos later value
- if AVD is chosen AND conveyance is BEFORE 6 months - valued on date of conveyance