Question

3. A receives a gift from B. B’s basis in the property was $200,000 and the fair market value of the property was $500,000 on the date of the gift. B held the property for 5 years and incurred $25,000 of gift tax due to the gift. A week after A receives the property, A sells the property. What are the tax results to A if A sells the property for $510,000? $450,000?

4. Same facts as above except B had a basis of $750,000 in the property. What are the results to A now?

5. Assume that B knew the tax rules applicable to gifts in question 4. Why wouldn’t B sell the property, take a $200,000 loss and make a gift of cash to B of $500,000?

Answer 1

3. The Gift Tax—If You Sell for Less Than Fair Market Value. ... The recipient does not pay taxes or report income when gift property is received but the donor of the property must report it and possibly pay a gift tax subject to certain available exemptions.

The FMV at the time of gifting the property is to be considered.so,500000 $ is the value of property gifted.

When B has gifted the property to A, he wont incur any IRS dime of income tax on it.

To figure out the basis of property you receive as a gift, you must know three amounts:

• The adjusted cost basis to the donor just before the donor made the gift to you.
• The fair market value (FMV) at the time the donor made the gift.
• The amount of any gift tax paid

If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your adjusted basis depends on whether you have a gain or loss when you dispose of the property.

• Your basis for figuring a gain is the same as the donor's adjusted basis, plus or minus any required adjustments to basis while you held the property.
• Your basis for figuring a loss is the FMV of the property when you received the gift, plus or minus any required adjustments to basis while you held the property.

Note: If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither a gain nor loss on the sale or disposition of the property.

If the FMV is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. If you received a gift after 1976, increase your basis by the part of the gift tax paid on it that is due to the net increase in value of the gift.

since the FMV is more than donor's(B) basis of property,FMV is considered to be price of gift fro calculations purposes.

so,tax implications of A---> $510,000-$500000 -$25000 = 15000$ Loss.

If A sold property for $450,000 ,then $450,000-$500000 -$25000= $75000 Loss..

4.On the same basis as above,if the donor's adjusted basis for property is $750000,which is more than FMV,it is considered to be price of gifted property.

SO,tax implications of A---> $510,000-$25000-$750000 = $265000 Loss.

If A sold property for $450,000 ,then $450,000-$750000-$25000 = $325000 Loss

5.The tax implications of gifting proceeds from sale of property - When he sells the property,he will have to pay tax on the capital gains. She will be liable to pay tax even if he gifts part of the proceeds to others. As the property has been held for more than or equal to 5 years, the gains will be long-term and taxed at 20% after indexation.

Also, a person can give cash gift to as many people he/she wants up to $15,000 without triggering the gift tax. if you gift a person $20,000, you can choose to deduct the extra five thousand from your lifetime exclusion limit of $11.18 million or pay tax on the extra $5000. If you opt to deduct the amount from your lifetime exclusion limit, then you must file IRS form 709, even though you are within your exemption limit. The reason you must file is so that the IRS can keep track of value of the total amount of gifts bequeathed by you.

Federal Gift Tax Rate Table

As you cross your annual and lifetime exemption limits, you will be taxed accordingly as per the rates given below for 2018.

Taxable Amount	Tax Rate
$0-$10,000	18%
$10,001 – $20,000	20%
$20,001 – $ 40,000	22%
$40,001 – $ 60,000	24%
$60,001 – $80,000	26%
$80,001 – $100,000	28%
$100,001 – $150,000	30%
$150,001 – $250,000	32%
$250,001 – $500,000	34%
$500,001 – $750,000	37%
$750,001 – 1000,000	39%
1,000,001 +	40%

so, since there are no capital gains,but losses,he need not pay tax on that but he has to pay tax on gift amount of $500000 as it exceeds 15000$ annual exemption limit.gift tax is applicable as per rates above mentioned, which is payable by donee (A) if the donor(B) hasn't paid it .