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Parent gave securities with an adjusted basis of $10,000 and fair market value of $9,000 to a child. Later the child sold the securities for $7,000. What is the child’s basis for the securities sold?
The general rule with gifts is that the donor’s basis rolls over to the recipient. The exception, however, is when FMV at the time of transfer is lower than the donor’s basis and the recipient sells the assets at a price lower than the FMV at the time of transfer. In this case, the recipient’s basis in the sold stock was the FMV at the time of the gift.
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Ann purchased 100 shares of stock for $50 per share. Ten years later, Ann died on February 1 and bequeathed the 100 shares of stock to a relative, Blake, when the stock had a market price of $100 per share. One year later, on April 1, the stock split 2 for 1. Blake gave 100 shares of the stock to another of Ann’s relatives, Greg, on June 1 that same year, when the market value of the stock was $150 per share. What was Greg’s basis in the 100 shares of stock when acquired on June 1?
In an inheritance, unless an alternative valuation date is selected the beneficiary’s basis in the received property is the FMV at the time of the donor’s death (here, 100 stocks at $100 per share, or $10,000). At the split, the basis remained the same, but the value and number of stocks changed (now 200 stocks at $50, still $10,000 total). In a gift, typically the recipient’s basis is that of the donor’s, which means that Greg received 100 stocks with a basis of $50 per share, or a total basis of $5,000.
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On February 1, Year 3, Howard learned that he was bequeathed 500 shares of common stock under his mother’s will. Howard’s mother had paid $2,500 for the stock 10 years ago. Fair market value of the stock on February 1, Year 3, the date of his mother’s death, was $4,000 and had increased to $5,000 six months later. The executor of the estate elected the alternative valuation date for estate tax purposes. Howard sold the stock for $4,500 on June 1, Year 3, the date that the executor distributed the stock to him. How much income should Howard include in his Year 3 individual income tax return for the inheritance of the 500 shares of stock that he received from his mother’s estate?
Gifts, whether from a living or deceased donor, are not taxable to the beneficiary, on the donor or the donor’s estate. In this case, Howard would only report a gain or loss for income tax purposes if he had sold the stock at a different value than the stock’s value on the alternative valuation date.
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This year, Brad gave $5,000 cash to his nephew, canceled $3,000 of the same nephew’s debt, donated $1,500 to a political party, and gave $1,200 of municipal bonds to a parent. What is the amount of Brad’s gifts before considering the gift tax annual exclusion?
In general, taxable gifts include every transfer of property for less than full consideration. This would include the gift of $5,000, the cancellation of debt, and the $1,200 of municipal bonds. However, donations such as to the political party are excluded.
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On July 1, Year 11, Vega made a transfer by gift in an amount sufficient to require the filing of a gift tax return. Vega was still alive in Year 12. If Vega did not request an extension of time for filing the Year 11 gift tax return, the due date for filing was:
The gift tax return date is the same date as individual tax returns, April 15 of the subsequent year of the transfer.
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Mr and Mrs Johns are US citizens. They were married for the entire calendar year. During the year, Mr gave a $60,000 cash gift to his sister. The Johns’ did not make any other gifts that year. They signed a timely election to treat the $60,000 gift as one made by each spouse. Disregarding the applicable credit and estate tax consequences, what amount of the current year gift is taxable to the Johns for gift tax purposes?
A donor may exclude the first $15,000 of gifts made to each donee. This gift is allowed to be split among the two spouses $15,000 each for a total of $30,000.
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A donor may exclude the first $15,000 of gifts made to each donee. This gift is allowed to be split among the two spouses $15,000 each for a total of $30,000.
In general, property acquired as a gift retains the cost basis it had in the hands of the donor. However, if the FMV of the property at the time of the gift is lower than the cost basis in the hands of the donor, the basis to the donee depends on the donor’s future selling price of the property.
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Of the following listed payments, which would necessitate a gift tax return filed by the donor?
There are four exclusions to not file a gift tax return: payments directly to a university for tuition, payments directly to a facility for medical care, charitable gifts, and marital transfers.
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In Year 4, Julie received a gift of 20 shares stock valued at $30 per share from an uncle that the uncle had held since Year 1. In Year 1, the stock was purchased at $20 per share. At the date of the gift, the basis and holding period of the gift were:
In a gift transaction, typically the donor’s basis and holding period pass to the recipient. So, since the stock was originally purchased three years ago at $20 per share, the 20 shares have a basis of $400 and a long-term holding period.
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A taxpayer inherited property from a deceased relative. The fair market value at the date of death was $20,000. An alternative valuation date was elected by the executor of the estate. The property was worth $18,000 six months later and was worth $24,000 when it was distributed to the taxpayer 9 months later. It had a cost basis to the deceased of $4,000. If the beneficiary sold the property for $23,000, what would be the recognized gain by the taxpayer and the nature of the gain?
For inheritance, the basis of the donor passes to the beneficiary. The value, however, is the FMV at the time of death or at an alternative valuation date no more than six months from the date of death (if elected). Since the alternative valuation date was elected, the basis of the property to the beneficiary was $18,000. So, if the taxpayer then sold the property for $23,000, the recognized gain would be a long-term gain of $5,000.
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If a gift of property has a fair market value below the donor’s basis, what is the basis and the holding period of the gift to the recipient?
Generally, a donor’s basis and holding period passes onto the recipient. However, if the FMV is below the donor’s basis, then the recipient’s basis is FMV and the holding period starts at the date of the gift (thus being short-term).
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Per tax regulations for the year 2020, of a decedent’s estate, which amount would be effectively the maximum applicable for estate and a gift tax credit?
The actual amount tax-free would go up to $11,580,000 however of the answers provided, $11,000,000 is the largest. $15,000 is the amount for the annual gift tax exclusion.
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Which of the following payments requires the filing of a gift tax return?
Payments made on another’s behalf paid directly to a health care provider for medical care or to an educational institution are not considered gifts for tax purposes. Additionally, the contribution to the political organization, while non-deductible for tax purposes, does not qualify as a gift (though there are limitations on amounts that may be contributed). Only the cash payment to the individual would require the filing of a gift tax return.
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Parents lend $2,000,000 to their child to start a business. The loan is interest free and is payable on demand. The imputed interest is subject to:
In this instance, the parents gave an advantageous loan to their child, the sort of which they would not give to a third party at arm’s length. As a result, the “lost” interest income (had they made a loan to another party at arm’s length) each year is treated the same as a gift.
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Assuming tax law in effect during 2019, what amount of a decedent’s taxable estate is effectively tax free if the maximum applicable estate and gift tax credit is taken?
The max amount that can be transferred pursuant to a death tax free is $11,400,000.
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Of the following, which is a valid deduction from a decedent’s gross estate?
Expenses of administering and settling the estate are valid deductions from a decedent’s gross estate.
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Of the following, which transfer of money would require filing a full gift tax return?
As of 2020, the exclusion amount for a gift tax is $15,000. This means that funds in excess of $15,000 not excluded, such as a medical payment or tuition, must have a return filed for them.
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Assuming tax law in effect during 2019, what amount of a decedent’s taxable estate is effectively tax free if the maximum applicable estate and gift tax credit is taken?
The max amount that can be transferred pursuant to a death tax free is $11,400,000.
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Of the following, which is a valid deduction from a decedent’s gross estate?
Expenses of administering and settling the estate are valid deductions from a decedent’s gross estate.
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Of the following, which transfer of money would require filing a full gift tax return?
As of 2020, the exclusion amount for a gift tax is $15,000. This means that funds in excess of $15,000 not excluded, such as a medical payment or tuition, must have a return filed for them.
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