Question

Ms Pacific died June 15, 2017. Her gross estate is large enough that Form 709 must be filed. Her personal residence was included in her gross estate, which had a date of death value of $875,000. Her cost in the home was $375,000. Ms Pacific owed $210,00 to City Bank on a mortgage secured by the home. The estae is liable for thisdebt. The home is in Ms Pacific's name with her niece designated for transfer on death. What value shoild be reported on Form 709 for Ms Pacific personal residence and on which schedule should it be reported ?

A) $437,500 on schedule E B) $665,000 on schedule A C) $665,000 on schedule E D) $875,000 on schedule A

Answer 1

Ans: D. $ 875000 on schedule A.

Justiication:

As per Instructions for Form 709(2017),

Transfers Subject to an Estate Tax Inclusion Period (ETIP): Certain transfers that are direct skips receive special treatment. If the transferred property would have been includible in the donor's estate if the donor had died immediately after the transfer (for a reason other than the donor having died within 3 years of making the gift), the direct skip will be treated as having been made at the end of the ETIP rather than at the time of the actual transfer.

For example, in our case Ms. Pacific transferred her house to her Niece, but retained the right to live in the house until her death (a retained life estate), the value of the house would be includible in Ms Pacific’s estate if she died while still holding the life estate. In this case, the transfer to niece is a completed gift (it is a transfer of a future interest) and must be reported on Part 1 of Schedule A. The GST portion of the transfer would not be reported until A died or otherwise gave up her life estate in the house.

Value to be reported will be the value of house without netting off the mortage because loans have nothing to do with the portion of the gift. The form tried to determine the Adjusted Basis (purchase price plus improvements minus adjustments such as depreciation)