Question 1

Virginia gave stock with an adjusted basis of $8,000 and an FMV of $10,000 to Carmen.No gift tax was paid on the transfer.Carmen then sold the stock for $9,000.The gain or loss Carmen will recognize on the sale is

Accepted Answer

Carmen's basis in the gifted stock is the donor's adjusted basis, which is $8,000, because the stock was sold for more than the adjusted basis but less than the FMV at the time of the gift. Carmen sold the stock for $9,000, resulting in a $1,000 gain ($9,000 - $8,000).

Question 2

On July 1,Frank loans his brother Matt $200,000.The loan is evidenced by an interest-free demand note.The loan is still outstanding on December 31.The applicable interest rate is 12%.Frank is treated as having made a gift of

Accepted Answer

Frank is treated as having made a gift of the forgone interest, not the principal amount of the loan. The forgone interest for 6 months (July to December) on $200,000 at 12% annually is $12,000 (200,000 * 12% * 6/12).

Question 3

Identify which of the following statements is true.

Accepted Answer

If the FMV of the gifted property exceeds its adjusted basis and the donor pays no gift tax, the donee's basis is the same as the donor's basis if the property is sold for a loss. This is known as the carryover basis rule. Choice B is incorrect because donors should dispose of property that has declined in value by selling it rather than gifting it, as they will receive a tax loss on the sale. Choice C is incorrect because the $13,000 annual exclusion per donee is only available for gift tax purposes, not estate tax purposes.

Question 4

In 2012,Letty makes taxable gifts totaling $4 million.Her only other taxable gifts amount to $1 million,all of which were made in 2009.What is Letty's 2012 gift tax liability before the unified credit?

Accepted Answer

The answer of In 2012,Letty makes taxable gifts totaling $4...

Question 5

Which of the following situations requires that a gift tax return be filed?

Accepted Answer

Gift tax returns are generally required when a gift exceeds the annual exclusion amount (which is $16,000 for 2023) or does not qualify for an exclusion. Gifts between spouses (A) are generally not taxable due to the unlimited marital deduction. Gifts that do not exceed the annual exclusion amount (B) do not require a gift tax return. Direct payments for someone's medical bills (C) are excluded from gift tax. However, adding someone as a joint tenant on real property without receiving consideration in return (D) is considered a gift of half the property's value, likely exceeding the annual exclusion amount and requiring a gift tax return.

Question 6

Steve gave stock with an adjusted basis of $7,000 and an FMV of $10,000 to Alice.No gift tax was paid.Later,Alice sold the stock for $12,000.The gain Alice will recognize on the sale is

Accepted Answer

The answer of Steve gave stock with an adjusted basis...

Question 7

In October 1976,Marian made a large taxable gift.It was her first gift.Marian used her $30,000 specific exemption to reduce her taxable gift amount.What impact does this gift have on her unified credit and death tax base?

Accepted Answer

The answer of In October 1976,Marian made a large taxable...

Question 8

Discuss the ways in which the estate and gift tax system is a unified system.

Accepted Answer

The answer of Discuss the ways in which the estate...

Question 9

Interest-free or below-market loans

Accepted Answer

Interest-free or below-market loans may result in treating the borrower as paying interest, and thus imputing interest income. This is done to prevent tax avoidance schemes where individuals borrow from each other without paying interest or paying below-market interest rates. However, if the loan amount is below $10,000, imputing interest income may not be necessary.

Question 10

Identify which of the following statements is false.

Accepted Answer

Gift tax returns are due annually by April 15 following the year of the gift if the donor is an individual. However, if the donor is a corporation or partnership, the due date can be different. Additionally, extensions of time to file gift tax returns are allowed, but the due date for payment of the gift tax still remains April 15.

Question 11

Which of the following statements is true?

Accepted Answer

The answer of Which of the following statements is true?
...

Question 12

Miguel gives Roberta land with an adjusted basis of $50,000 and an FMV of $40,000.No gift tax is paid.Roberta sells the land for $36,000.Roberta recognizes

Accepted Answer

Roberta's basis in the land is $50,000, but since it has a lower FMV of $40,000, she can only use the FMV to calculate any gain or loss when she sells it. Thus, her loss is $4,000 ($40,000 FMV - $36,000 sale price).

Question 13

Elaine loaned her brother,Mike,$175,000 to purchase a new home.Elaine does not charge Mike any interest on the loan.What are the tax consequences to Elaine and Mike?

Accepted Answer

According to the IRS, if a loan is interest-free or has a rate below market, the forgone interest is treated as a gift from the lender to the borrower. Therefore, Elaine is treated as having made a gift of the forgone interest on the $175,000 loan to Mike. However, unless the gift exceeds the annual gift tax exclusion, Elaine would not be subject to gift taxes. Mike does not have any tax consequences as he did not pay any interest on the loan.

Question 14

Gloria makes the following gifts during the year:  Before considering the unified credit,what are Gloria's taxable gifts?

Accepted Answer

The answer of Gloria makes the following gifts during the...

Question 15

Ed gives Steve land with an adjusted basis of $40,000 and an FMV of $90,000.Ed paid no gift tax.Ed then inherits the same land back from Steve at Steve's death eight months later.At Steve's death,the land is worth $120,000.Ed's basis in the land becomes

Accepted Answer

The answer of Ed gives Steve land with an adjusted...

Question 16

Jennifer and Terry,a married couple,live in Illinois; which is a common law state.In the current year,Terry gives his sister $200,000 cash.Jennifer and Terry agree to gift splitting.Neither Jennifer nor Terry has made any taxable gifts in prior years.What are Jennifer and Terry's taxable gifts?

Accepted Answer

The answer of Jennifer and Terry,a married couple,live in Illinois;...

Question 17

Roger makes a $1,000,000 cash gift on January 1 of the current year,and dies on February 1 of the current year.Roger's gift tax return is due

Accepted Answer

The answer of Roger makes a $1,000,000 cash gift on...

Question 18

Connie has some acreage that is valued at $1,500,000.Her daughter would like to build a home on it,but can only afford $500,000.Connie agrees to sell it to her daughter for $500,000.Is there any gift tax consequence as a result of this transaction?

Accepted Answer

The answer of Connie has some acreage that is valued...

Question 19

Tracy gave stock with an adjusted basis of $18,000 and an FMV of $15,000 to her nephew Phil.No gift tax was paid.Phil sold the stock for $16,000.The gain or loss Phil will recognize on the sale is

Accepted Answer

The answer of Tracy gave stock with an adjusted basis...

Question 20

On January 1,Jeff loans his friend Patrick $7,000 to buy a used car.Patrick signs a noninterest-bearing demand note.The applicable interest rate is 5%.Which of the following statements is correct?

Accepted Answer

Interest does not need to be imputed if the loan is less than $10,000 and there's no tax avoidance motive, according to IRS rules.

Quiz 23: The Gift Tax