Question

For the holidays, Marty gave a watch worth $21,500 to Emily and jewelry worth $52,250 to Natalie. Required: Has Marty made any taxable gifts this year and, if so, in what amounts? Assume Marty is married to Wendy and they live in a community-property state.

What are the amounts, if any, of their taxable gifts? (For all requirements, leave no answer blank. Enter zero if applicable.)

Answer 1

In the above question, year has been considered as 2020; in case the year is 2019, the answer would remain the same.

Provisions -

Gift - Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return is to be considered a gift.

The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable. 1. Gifts that are not more than the annual exclusion for the calendar year. 2. Tuition or medical expenses you pay for someone (the educational and medical exclusions). 3. Gifts to your spouse. 4. Gifts to a political organization for its use. In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.

The annual exclusion is $15,000 - In 2019 and 2020, you can give up to $15,000 to someone in a year and generally not have to deal with the IRS about it

The annual exclusion is per recipient; it isn’t the sum total of all your gifts.

The annual exclusion also is per person, which means that if you’re married, you and your spouse could give away a combined $30,000 a year to whomever without having to file a gift tax return.

Case -I Marty gave a watch worth $21,500 to Emily and jewelry worth $52,250 to Natalie.
Annual exclusion for the gift is $15,000.
Therfore, for each gift we can exclude $15,000 to calculate the taxable amount.
	Gift Amount	Annual Exclusion	Taxable Amount
Marty's taxable gift to Emily (Gift Amount - Annual Declaration)	$ 21,500.00	$         (15,000.00)	$ 6,500.00
Marty's taxable gift to Natalie (Gift Amount - Annual Declaration)	$ 52,250.00	$         (15,000.00)	$ 37,250.00

Case -II Assume Marty is married to Wendy and they live in a community-property state.
Annual exclusion for the gift is $15,000.
Marty's & Wendy's each taxable gift to Emily = $21,500 / 2 = $10,750
Marty's & Wendy's each taxable gift to Natalie = $52,250 / 2 = $11,125
	Gift Amount	Annual Exclusion	Taxable Amount
Marty's taxable gift to Emily (Gift Amount - Annual Declaration)	$ 10,750.00	$         (15,000.00)	$ 0
Marty's taxable gift to Natalie (Gift Amount - Annual Declaration)	$ 26,125.00	$         (15,000.00)	$          11,125.00
Wendy's taxable gift to Emily (Gift Amount - Annual Declaration)	$ 10,750.00	$         (15,000.00)	$ 0
Wendy's taxable gift to Natalie (Gift Amount - Annual Declaration)	$ 26,125.00	$         (15,000.00)	$          11,125.00