Gift Tax Calculation: Understanding Gift-Splitting Election
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Questions and Answers

What is a potential benefit of making a gift-splitting election?

  • Avoiding the need to file a gift tax return
  • Reducing the total taxable gift and potentially lowering the tax rate (correct)
  • Qualifying for a charitable deduction
  • Increasing the annual exclusion amount

    • What type of interest is not eligible for a marital deduction?

  • An interest that is transferred to a spouse
  • An interest that is transferred to a charitable organization
  • An interest that terminates upon an event or after a specified amount of time (correct)
  • An interest that is transferred to a non-spouse

    • What is the limitation of the gift-splitting election?

  • It can only be made for gifts to charitable organizations
  • It can only be made for gifts of entire interests
  • It is limited to the value of the gift after the annual exclusion (correct)
  • It can only be made for gifts to a spouse

    • What is a requirement for both spouses to make a gift-splitting election?

    <p>They must both consent to the election on a timely gift tax return</p> Signup and view all the answers

    What is the benefit of using the annual exclusion in gift tax calculation?

    <p>It reduces the total taxable gift</p> Signup and view all the answers

    What is the result of a gift-splitting election on the gift tax return?

    <p>It applies to all completed gifts</p> Signup and view all the answers

    What is the value at which property is included in the taxable gift?

    <p>Fair market value at the date of the gift</p> Signup and view all the answers

    What is the first step in calculating the present value of a future interest?

    <p>Calculate the present value of the present interest first</p> Signup and view all the answers

    Which of the following is not a gift excluded from tax?

    <p>Charitable contributions</p> Signup and view all the answers

    What is the purpose of the §7520 interest rate in valuing temporal interests?

    <p>To determine the present value of the future interest</p> Signup and view all the answers

    What is the result of calculating the present value of the future interest and the present interest?

    <p>The taxable gift</p> Signup and view all the answers

    What is the definition of fair market value?

    <p>The price at which the property would change hands between a willing buyer and a willing seller</p> Signup and view all the answers

    What is the amount of cumulative transfers that can be made without incurring a tax?

    <p>$12.92 million</p> Signup and view all the answers

    What is the term used to describe the amount of the exemption equivalent?

    <p>Applicable exclusion amount</p> Signup and view all the answers

    Which of the following deductions is unlimited for transfers to a spouse?

    <p>Marital deduction</p> Signup and view all the answers

    What is the common feature of federal transfer taxes that refers to the exemption equivalent?

    <p>Exemption equivalent</p> Signup and view all the answers

    How is the applicable credit related to the exemption equivalent?

    <p>The applicable credit is a tax credit on the exemption equivalent</p> Signup and view all the answers

    What is the result of making cumulative transfers that exceed the exemption equivalent?

    <p>A tax is incurred on the amount exceeding the exemption equivalent</p> Signup and view all the answers

    What is the definition of fair market value?

    <p>The price at which a willing buyer and a willing seller would exchange the property.</p> Signup and view all the answers

    Which of the following transfers is not excluded from the gift tax?

    <p>Revocable gifts.</p> Signup and view all the answers

    What is the primary purpose of the annual exclusion in gift tax calculation?

    <p>To reduce the amount of taxable gifts.</p> Signup and view all the answers

    How is the present value of a future interest calculated?

    <p>By using the §7520 interest rate.</p> Signup and view all the answers

    What is the result of making cumulative transfers that exceed the exemption equivalent?

    <p>A gift tax is incurred.</p> Signup and view all the answers

    What is the valuation method used for future interests, such as remainders?

    <p>Discounting the future payment by the §7520 interest rate</p> Signup and view all the answers

    How is the valuation of property for transfer tax purposes determined?

    <p>By using the fair market value on the date of the transfer.</p> Signup and view all the answers

    What is the primary purpose of the §7520 interest rate in valuing temporal interests?

    <p>To calculate the present value of future interests</p> Signup and view all the answers

    Which of the following types of gifts does not qualify for the annual exclusion?

    <p>Gifts of life estates</p> Signup and view all the answers

    What is the correct formula to calculate the value of a remainder interest?

    <p>Value of remainder interest = (Future payment) / (1 + r)^n</p> Signup and view all the answers

    What is the primary difference between the valuation of present interests and future interests?

    <p>Present interests are valued at fair market value, while future interests are valued at present value</p> Signup and view all the answers

    What is the effect of the marital deduction on the gift tax calculation?

    <p>It reduces the taxable gifts by the value of the property transferred to the spouse</p> Signup and view all the answers

    What is included in the gross estate besides the property possessed by the decedent at death?

    <p>The value of certain transfers made during lifetime that take effect at death</p> Signup and view all the answers

    What is the purpose of calculating the present value of a future interest?

    <p>To value the interest for gift tax purposes</p> Signup and view all the answers

    What is the benefit of using the annual exclusion in gift tax calculation?

    <p>It reduces the value of the gift for tax purposes</p> Signup and view all the answers

    What is the term used to describe the amount of the exemption equivalent?

    <p>Applicable exemption amount</p> Signup and view all the answers

    Which of the following is a gift excluded from tax?

    <p>Gifts to charitable organizations</p> Signup and view all the answers

    What is the valuation method used for property included in the probate estate?

    <p>Fair market value</p> Signup and view all the answers

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