Andy "Nard Dog" Bernard recently graduated from Cornell. As a graduation gift, Nard Dog's Father gave...

Andy "Nard Dog" Bernard recently graduated from Cornell. As a graduation gift, Nard Dog's Father gave him the family's old Toyota Prius because, according to the father, "the Ferarri feels more like your brother and the old Prius seems more your style." The Prius was originally purchased 8 years ago for $33,000 and today it is worth $16,000. Is the gift taxable to Andy? If so, how much is taxable? Cite at least one section of the Internal Revenue Code to support your answer. Is the gift taxable to to the father? If so, how much is taxable? Cite at least one section of the Internal Revenue Code to support your answer. If the father sold the Prius and gave the proceeds as a gift to Andy would the gift be taxable to either Andy or the Father? If so, how much would be taxable? Cite at least one section of the Internal Revenue Code to support your answer.

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Answers to the question:

Andy has got a Toyota Prius as gift from his father on occasion of getting graduated. As per federal gift tax law if a car is given as a gift to any family member, friend or any other individual and if car’s fair market value is less than $ 15,000 then it is not taxable (for married couple it is for each). However in this case car is today worth $ 16,000 and hence liable for gift tax on amount exceeding $ 15,000. However IRS laid down that the giver of gift is liable to gift tax and not the person who is receiving the gift.

Hence Andy will not be liable to gift tax on gift received from father as Toyota Prius.

Yes father is liable to pay tax on gift given to Andy on $ 1,000. However father won’t have to come out of pocket to pay a gift tax on that extra $ 1,000. However, he will have to file a gift tax return – IRS Form 709. When he file form 709 , the $ 1,000 shifts over to becoming his estate liability after his death. It’s subtracted from estate tax exemption, and balance then covers his estate. The estate tax exemption for 2018 is $ 11.18 million per person.

The same above provision will be applicable on gift given as sale proceeds of the vehicle instead of vehicle to son or any family member. Father is liable to gift tax on extra $ 1,000 above limit of $ 15,000 and all other provisions are same as stated above.

ekkarill92 answered 1 year ago

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