Question

Angelina gave a parcel of realty to Julie valued at $137,500 (Angelina purchased the property five years ago for $59,000).

Required: Compute the amount of the taxable gift on the transfer, if any.

Suppose several years later Julie sold the property for $143,200. What is the amount of her gain on the sale?

Answer 1

Computation of taxable gift is a bit complicated,since the gift tax is cumulative over the lifetime of the taxpayer as well as progressive. The progressive rates and cumulative computation of the gift tax result in taxing larger gifts or gifts in succeeding years at higher and higher tax rates,upto the maximum rates.

Once the taxable gift amount has been calculated,there are four basic steps for computing the gift tax.

1. Add the amount of all taxable gifts made by the donor in all prior periods to the current gifts.

2. Determine a tax figure for all current and past taxable gifts at current rates,using the tax rates found at I.R.C 2001(c) (That were presumabily actually paid.)

3. Determine a tax figure for all past gifts without the current gifts,using the same tax rates.

4. Substract the figure calculated in step 3 from the figure calculated in step 2 to determine the gift tax on current gifts for the calendar year.See I.R.C 2502.

In computing the tax,all past taxable gifts must be accounted for,even if the donor failed to file a gift tax return.

The federal estate and gift tax law provides a single unified rate schedule for both state and gift taxes.See I.R.C 2001.

I hope this will help you in computing gift tax.Thankyou