FIN 496 Chapter ME 5 Gift Tax Flashcards

Gift Tax Fundamentals

• Annual exclusion for gift tax in 2022 is $16,000 per recipient, applicable to each parent, allowing couples to gift up to $32,000 per child.
• Applicable credit for lifetime gifts in 2022 is $12,060,000 per parent, enabling large cash transfers without incurring taxes.
• Total gift amount without tax implications for Becky and Jesse is calculated as $24,184,000.

Gift Splitting

• Gift-splitting enables a couple to double the annual exclusion limit by electing to treat gifts made by one spouse as made by both.
• All gifts made during a year must be split if a couple elects to do so; this includes gifts from both spouses.
• Even with gift-splitting, a gift tax return must be filed if a spouse agrees to split gifts, even if not taxable.

Net Gifts

• A "net gift" allows the donor to shift liability for gift tax to the donee without exceeding the taxable amount.
• Donors do not need to prepay gift taxes for net gifts; taxes are due the following year.
• A net gift qualifies for the annual exclusion if it represents a present interest.

Valuation of Gifts

• Gross gifts are valued at their fair market value at the time of giving, not adjusted basis.
• Interest-free loans that do not exceed $10,000 do not require inclusion in gift tax computation due to imputed interest rules.
• For J.R.'s gross gifts, the total is calculated by summing the fair market values of the gifted assets: bond portfolio, shares, and automobile, resulting in $492,000.

Gift Tax Implications for Families

• Large gifts can include properties and cash, which must be properly documented to avoid tax liabilities.
• Interests given as gifts, such as remainder interests in property, substantiate complex gifting strategies and tax implications.
• Properly categorizing family members and their relationship to the donor delineates the distribution and potential tax liabilities associated with gifts.

This quiz focuses on the gift tax implications for individuals planning to give significant financial gifts. Using real-life scenarios, it explores the regulations surrounding gift giving to maximize tax benefits. Ideal for students in finance or tax-related courses looking to deepen their understanding of gift tax strategies.