Chapter 16, Problem 4PA

Summary Introduction

(a)

To determine:

Taxable value of gifts and their value of inclusion in an estate in case $24,000 is received as gift from grandparents for the purchase of new car.

Introduction:

Taxable value is the value of an estate of a person after eligible deductions upon which the tax is charged.

Gift is a present willingly given to someone without receiving any monetary return or consideration against it.

Estate is the sum total of all the money, assets and properties held by a person expressed in monetary terms.

Explanation of Solution

Given,

Value of gift is $24,000.

A sum of $24,000 is gifted to grandchild by his grandparents for the purchase of a new car and the taxable value of gift and the value of inclusion in an estate is,

• Gifts are taxed under the federal gift tax by the giver of the gift and not by the recipient.
• The lifetime exemption under gift tax given to an individual is $5,000,000.
• The annual exemption under gift tax given to an individual is $14,000.
• The taxable amount of gift under gift tax is $10,000 because it is above the specified exemption limit.
• The value of inclusion in an estate is $10,000because it is above the specified exemption limit.

Hence, the taxable gift amount will be $10,000 and value of inclusion is an estate will be $10,000.

Conclusion

Thus, the total value of gift which is taxable under gift tax is $10,000 and the value of inclusion is an estate is $10,000 but am immediate filing of tax is not required as it will be deducted from the lifetime exemption of gift tax and will reduce the lifetime exemption to $4,900,000 of an individual.

Summary Introduction

(b)

To determine:

Taxable value of gifts and their value of inclusion in an estate in case son received $35,000 from his father to start a business

Explanation of Solution

Given,

Value of gift is $35,000.

A sum of $35,000 is gifted to son by his father for starting a new business and the taxable value of gift and the value of inclusion in an estate is,

• Gifts are taxed under the federal gift tax by the giver of the gift and not by the recipient.
• The lifetime exemption under gift tax given to an individual is $5,000,000.
• The annual exemption under gift tax given to an individual is $14,000.
• The taxable amount of gift under gift tax is $21,000 because it is above the specified exemption limit.
• The value of inclusion in an estate is $21,000because it is above the specified exemption limit.

Hence, the taxable gift amount will be $21,000 and value of inclusion is an estate will be $21,000.

Conclusion

Thus, the total value of gift which is taxable under gift tax is $21,000 and the value of inclusion is an estate is $21,000 but am immediate filing of tax is not required as it will be deducted from the lifetime exemption of gift tax and will reduce the lifetime exemption to $4,790,000 of an individual.

Summary Introduction

(c)

To determine:

Taxable value of gifts and their value of inclusion in an estate in case parents paid $35,000 for tuition fees of W college for their daughter’s education.

Explanation of Solution

Given,

Value of gift is $35,000.

A sum of $35,000 is gifted to daughter for payment tuition fees of W College and the taxable value of gift and the value of inclusion in an estate is,

• Gifts are taxed under the federal gift tax by the giver of the gift and not by the recipient.
• The lifetime exemption under gift tax given to an individual is $5,000,000.
• The annual exemption under gift tax given to an individual is $14,000.
• Amount paid for education is exempt from gift tax.

Since, expenses made for education is not eligible for tax so, the taxable gift amount will be $0 and value of inclusion in an estate will be $0.

Conclusion

Thus, the total value of gift which is taxable under gift tax is $0 and the value of inclusion is an estate is $0 because educational expenses are not subject for payment of gift tax.

Summary Introduction

(d)

To determine:

Taxable value of gifts and their value of inclusion in an estate in case sister paid $47,000 as medical expenses of her brother at D medical centre.

Explanation of Solution

Given,

Value of gift is $47,000.

A sum of $47,000 is gifted to brother by his sister for payment of medical expenses and the taxable value of gift and the value of inclusion in an estate is,

• Gifts are taxed under the federal gift tax by the giver of the gift and not by the recipient.
• The lifetime exemption under gift tax given to an individual is $5,000,000.
• The annual exemption under gift tax given to an individual is $14,000.
• Amount paid for medical treatment is exempt from gift tax.

Since, expenses made for medical treatment is not eligible for tax so, the taxable gift amount will be $0 and value of inclusion in an estate will be $0.

Conclusion

Thus, the total value of gift which is taxable under gift tax is $0 and the value of inclusion is an estate is $0 because medical treatment expenses are not subject for payment of gift tax.

Summary Introduction

(e)

To determine:

Taxable value of gifts and their value of inclusion in an estate in case a widow paid $105,000 to charity.

Explanation of Solution

Given,

Value of gift is $105,000.

A sum of $105,000 is gifted to charity by widowed women and the taxable value of gift and the value of inclusion in an estate is,

• Gifts are taxed under the federal gift tax by the giver of the gift and not by the recipient.
• The lifetime exemption under gift tax given to an individual is $5,000,000.
• The annual exemption under gift tax given to an individual is $14,000.
• Amount paid for charitable purposes is exempt from gift tax.

Since, all amount paid for charitable purposes is not eligible for tax so, the taxable gift amount will be $0 but the whole amount of $105,000 is eligible for deduction under estate value.

Conclusion

Thus, the total value of gift which is taxable under gift tax is $0 and the whole amount of $105,000 is eligible for deduction under estate value because amount paid for charitable purposes is not subject for payment of gift tax.

Summary Introduction

(f)

To determine:

Taxable value of gifts and their value of inclusion in an estate in case mother gave an insurance policy to her daughter of face value $50,000 and a cash value of $10,000.

Explanation of Solution

Given,

Value of gift is $50,000 worth of insurance policy and $10,000 of cash value.

A sum of $35,000 is gifted to son by his father for starting a new business and the taxable value of gift and the value of inclusion in an estate is,

• Gifts are taxed under the federal gift tax by the giver of the gift and not by the recipient.
• The lifetime exemption under gift tax given to an individual is $5,000,000.
• The annual exemption under gift tax given to an individual is $14,000.
• The taxable amount of insurance policy under gift tax is $50,000 because no deduction is allowed for insurance policy and amount of $10,000 is exempt because it is below the annual exemption of an individual.
• The value of inclusion in an estate is $50,000because no deduction is allowed on insurance policy and for cash given will be $0 because it is below the specified limit.

Hence, the taxable gift amount for insurance policy will be $50,000 and value of inclusion is an estate will be $50,000 and for cash given the taxable amount is $0 and inclusion value is $0.

Conclusion

Thus, the total value of gift which is taxable under gift tax is $50,000 and the value of inclusion is an estate is $50,000 but am immediate filing of tax is not required as it will be deducted from the lifetime exemption of gift tax and will reduce the lifetime exemption to $4,500,000 of an individual.