Question

Maria received a gift of stock from her favorite uncle. The stock had a fair market value of $40,000 and a basis to the uncle of $10,000 at the date of the gift. Is the gift taxable to Maria? If so, how much is taxable? Is the gift taxable to to the uncle? If so, how much is taxable? If the uncle sold the stock and gave the proceeds as a gift to Maria would the gift be taxable to either Maria or the Uncle? If so, how much would be taxable? Cite the section of the Internal Revenue Code to support your answers.

Answer 1

1. Annual exlusion limit: For 2017, the annual exclusion from gift tax is $14,000 per recipient. In 2018, it increases to $15,000 per recipient.

2. Life time exemption limit: In addition, if you give a gift in the form of property or money in any other kind, and the gifts value exceeds the annual exclusion limit ($14,000 in 2017 and $15,000 in 2018), you can also tap into the lifetime estate and gift tax exemption which is $5.49 million per donor in 2017 and $5.6 million per donor in 2018.

3. Who has to pay tax: The federal gift tax applies to the giver / doner of a gift, not the recipient / donee, for amounts above the specified level mentioned earlier.

However if giver of the gift does'nt pay the gift tax, the same will be collected from the recipient of the gift.

In the question in is said that the Cost basis and fair maret value of the stock given as gift is $10,000, and $40,000 respectively.

the fair market value on th date of transfer shall be taken as the value of the gift (here stock).

So, the value of gift shall be taken here is $40,000 which is more than annual exclusion limit ($14,000 for 2017) by $26,000.

Eventhough the value of the gifts exceeds the annual exclusion limit, the amount $26,000 is within the limits of life time exemption limit. Therefore taxibility of gift has not arisen.

Is the gift taxable to Maria? - No

If so, how much is taxable? - NIl

Is the gift taxable to to the uncle? - No. However, If value of the gift exceeds the above specified limits, then he has to pay the gift tax.

If so, how much is taxable? Nil

If the uncle sold the stock and gave the proceeds as a gift to Maria would the gift be taxable to either Maria or the Uncle? - Gift tax is always chargeble to donor of the gift.

If so, how much would be taxable? - Nil. Since the value of the gift is within the limits.

Cite the section of the Internal Revenue Code to support your answers.- Code section is 2501

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