Taxes: Gift Tax Flashcards Preview

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Flashcards in Taxes: Gift Tax Deck (9)
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1

Taxes:
Gift Tax
Definitions

Definitions
- Gift: transfer of property for less than adequate consideration
- transfer during life of owner triggers gift tax
- transfer at death triggers estate tax
- community property states, 1/2 owned by each spouse
- recipient of gift = donee, and recipient of inheritance = heir
- donee/heir secondarily liable for transfer tax
- property transferred to a trust = 2 gifts: income interest and remainder interest
- beneficiary of the income interest receives the income from the trust each year
- beneficiary of remainder interest receives property of trust when it terminates
- gift/inheritance are not income to recipient
- donees assume carryover basis and holding period "tacks" from donor
- inheritance, heir takes a "step-up" basis (FMV of estate) and holding period always long term

2

Taxes:
Gift Tax
Transfer Must be Complete

Transfer Must be Complete
- gift is delivered to donee (posession)
- donor must give up control (control)
- donee must accept (use)

3

Taxes:
Gift Tax
Joint Ownership

Joint Ownership
- creation of a joint ownership interest without equal consideration is considered a gift to co-owner with less contributed
- regardless of type of ownership (tenancy in common or joint tenancy)
- transfers to joint bank account do not qualify until donee withdraws funds
- not purchase of joint savings bond
- joint interest with spouse not taxed (marital deduction)
- termination of joint tenancy may also trigger tax

4

Taxes:
Gift Tax
Exclusions from Gift Tax

Exclusions from Gift Tax
- transactions not considered gifts:
- medical costs, or education exp, but must be paid directly to provider
- political contributions
- satisfaction of obligation
Annual Exclusion
- $14,000
- per donee per year
- only applies to gift of present interest (not trust)

5

Taxes:
Gift Tax
Integration of Gift & Estate Tax

Integration of Gift & Estate Tax
- transfers only subject to one
Both
- unlimited marital deduction
- unlimited deduction for contribution to charity
Unified Credit
- first $5,430,000 of transfers from estate/gift will not trigger tax liability

6

Taxes:
Gift Tax
Gift Splitting

Gift Splitting
- gift of community property is split between spouses
- election available each year
- gift treated as given equally by both spouses
- each must file a gift tax return

7

Taxes:
Gift Tax
Deductions

Deductions
Marital Deduction
- deduct most gifts to spouse
- not terminal interests
- unlimited amount
- deduction = total gift - exclusion
- spouse must be US citizen, or exclusion of only $147k
Charitable Contribution
- gift to educational, scientific, religious, etc
- not cemeteries
- no limit

8

Taxes:
Gift Tax
Formula

Formula
Current Gifts
- 1/2 split gifts
+ 1/2 split gifts by spouse
- Annual Exclusion ($14k)
- Martial & Charitable Deductions
= current taxable gifts
+ prior taxable gifts (not previous tax paid)
= cumulative gifts
X tax rate
= cumulative tax
- current tax on prior taxable gifts
- remaining unified credit
= gift tax payable

9

Taxes:
Gift Tax
Other

Other
- Due April 15
- due if gift > annual exclusion or future interest
- no gift tax return required if gift to charity>exclusion
- if someone if currently receiving income it is a present interest despite the right to revoke

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