Question

Using property she inherited, Myrna makes a gift of $16.2 million to her adult daughter, Doris. Neither Myrna nor her husband, Greg, has made any prior taxable gifts. Assuming that a flat 40% tax rate applies, determine the Federal gift tax liability if: 

a. The election to split gifts is not made. 

b. The election to split gifts is made. 

c. What are the tax savings from making the election?

 

 

Answer 1

The Federal Gift and Estate Taxes

Federal gift tax is collected by an individual on transfer of right in property to another party for a consideration which is less than adequate consideration. The federal gift tax is to be paid by the person transferring the right that is donor is liable to pay the tax. In some cases if donor fails to pay then receiver has to pay tax up to the value of property received.

 

Discussion and analysis

a.

No election to split gift is not made.

Computation of M’s gift tax-

Amount of Gift	$16,200,000
Less: Annual exclusion	($15,000)
Taxable gift	$16,185,000
Gift tax on $16,185,000 as per appendix A-
($345,800 + 40% x ($16,185,000 - $1,000,000)	$6,419,800
Less: Maximum credit allowed for 2020	($4,417,800)
Gift tax due	$2,002,000

 

b.

Election to split gift is made.

Computation of M’s and G’s gift tax-

	M	G
Amount of Gift	$81,00,000	$81,00,000
Less: Annual exclusion	($15,000)	($15,000)
Taxable gift	$8,085,000	$8,085,000
Gift tax on $8,085,000
($345,800 + 40% x ($80,185,000 - $1,000,000)	$3,179,800	$3,179,800
Less: Maximum credit allowed for 2020	($4,417,800)	($4,417,800)
Gift tax due	$0	$0

 

c.

Tax savings from making the election are $2,002,000.

The Federal Gift and Estate Taxes

Federal gift tax is collected by an individual on transfer of right in property to another party for a consideration which is less than adequate consideration.