Question

Determine the amount of completed gift if any from the following occurrences:

A parent sells real estate valued at $1.5million to an adult child who pays $900,000 in consideration

A furniture store holds a clearance sale and sells a customer a $6,000 dining room set for $2,000

During the year, a father purchases food and clothing $8,000 for his minor child.

A wealthy person contributes $1,500 to a political organization

Jeremy lends $500,000 interest free to his brother Jacob who signs a demand note. The applicable interest rate is 6% and the note remains unpaid at year-end.

Answer 1

1) The father sells the real estate to a son who is an adult and son pays $900000 while the Market Valuev of property is $1500000. In this case the property is transferred for insufficient consideration and hence there is an element of gift of $600000 which will be taxable.

2) There is no element of gift in this case because the sale is in normal course of business at the time of clearance sale. The prices are universally reduced for all the customers for certain products and its it not exclusive to a particular client and hence there is no gift in this case. The price reduction of $4000 was due to clearance and not especially for the customer.

3)As per US tax rules there is no tax for any cash or asset given upto $15000 in a Year. In this case the father purchased food and clothing upto $8000 and hence it's exempt.

4) Any contributions to political organizations for their use is exempt from gift tax rules and hence $1500 is exempt

5) In cases of loan it is always advisable to charge interest otherwise the interest that could have been earned is deemed to be an income. In this case $500000*6%= $30000 is deemed income. Also since the loan remained unpaid at year end, Jeremy can claim loss in case of tax payable.