Gift Tax Discussion

Gift Tax Discussion Questions-

1. Franklin would not have any gift tax consequences from the payment of $40,000 in tuition to private school for his 16 year old son Charles. Code Sec 2503(e)(2)(A) states that any payment of tuition is considered a “qualified transfer” and is not considered a taxable gift.

Franklin would face gift tax consequences due to the purchasing of a car for his son Charles because the title is in Charles’ name. The amount over $14,000 (annual exclusion) or $28,000, if Franklin was married, has gift tax consequences (in this case $35,000-14,000=$21,000). IRC Sec. 2503(c) explains that any transfer of an outright ownership interest to a minor is subject to gift tax over and above the annual exclusion per donee. If Franklin kept the title in his name it would not be subject to gift tax because his son is a minor and would have a present interest in the use of the vehicle.

There would be no gift tax consequences to Franklin for allowing his son and 25 year old daughter to use the summer cottage in Maine. This is not considered a gift because Franklin owns the property and family members are entitled to use the property without any gift tax consequences so long as the title to the property is not transferred to Franklin or his daughter.

2. Darla sold her house to her son for less than what the actual value was and will therefore have gift tax consequences. Code Sec. 2512 deals with the valuation of gifts, 2512(a) states that if a gift is made in property, the value of the property at the date of the gift shall be considered the amount of the gift. Code Sec 2512(b) states that when property is transferred for less than an adequate and full consideration in money or money’s worth, then the amount by which the value of the property exceeded the value of the consideration shal be deemed a gift, and shall be included in computing the amount of gifts made during the calendar