Riley owns some land, which has an oil deposit underneath it. His annual royalties are usually around $100,000. Because Riley is in the highest marginal tax rate bracket, he would like to have some (or all) of the royalty income taxed to his son, Mark, thus lowering the overall tax on the royalty income. To do this
I.Riley can gift part of the land to Mark.
II.Riley can gift all of the land to Mark.

Question

Riley owns some land, which has an oil deposit underneath it. His annual royalties are usually around $100,000. Because Riley is in the highest marginal tax rate bracket, he would like to have some (or all) of the royalty income taxed to his son, Mark, thus lowering the overall tax on the royalty income. To do this
I.Riley can gift part of the land to Mark.
II.Riley can gift all of the land to Mark.
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Quizplus · Accepted Answer

Both statements are correct because transferring ownership of part or all of the land to Mark would shift the tax liability for the royalties derived from that land to him. This could potentially lower the overall tax on the royalty income if Mark is in a lower tax bracket.

Riley Owns Some Land, Which Has an Oil Deposit Underneath