Question

Question 1. During 2016, Charley wants to take advantage of the annual exclusion and make gifts to his 2 married children (including their spouses) and his 5 minor grandchildren. a. How much property can Charley give away without creating a taxable gift?b. How does your answer change if Charley’s wife, Coleen, elects to join in making the gifts?

Question 2.  

In 2016, Alejandro made a gift of $2,000,000 to each of his three sons in 2016. He has made no previous gifts. What is the amount of his taxable gifts and the gift tax?

Click to access Exhibit 27-1, Unified Tax Credit, Unified Transfer Tax (2011 - 2012) and Unified Transfer Tax (2012) rates to use for this problem.

The amount of Alejandro's taxable gifts is _________ and the gift tax is $_____________

Answer 1

Federal gift tax return (IRS Form 709) is required to be filed if an individual gives someone gift of more than $14,000 during the year.

The limit may change from year to year. During 2016, the exclusion limit was $14,000 to one individual.

In this case , the number of persons gifted:

2 married children

2 spouses of children

5 minor grand children

Total 9 individuals.

Hence total amount he can give without triggering a gift tax =9*14000= $126,000

Amount can be given away without creating a taxable gift

$        126,000

If Charley’s wife, Coleen, elects to join in making the gifts:

The total amount of gift without creating a taxable gift will double.

The amount will be=126000*2=$252,000

Amount can be given away without creating a taxable gift

$ 252,000

Question 2:

Total amount gifted=($2,000,000*3)=$6,000,000

Taxable gift =$6,000,000-3*$42000=$5958000

Lifetime exclusion available=$5,340,000

The amount of gift can be applied for life time exclusion.

The balance amount $5958000-$5,340,000=$618,000 will attract gift tax in 2016, if lifetime exclusion is opted.

The gift tax will be 40% of $618,000=

$247,200

The amount of Alejandro's taxable gifts is $5958000 and the gift tax is $ $247,200