...city water, he had to pay the water company $5,000 to extend the water line to his property. The $5,000 cost is an addition to the basis of the land. A) True B) False 2. The basis for nonbusiness property changed to business use is the greater of the adjusted basis of the property or its fair market value on the date it is converted to business use. A) True B) False 3. In 2011, Tom Turner received a gift of property that had a fair market value of $10,000 at the time of the gift. The donor's adjusted basis in the property at the time of the gift was $12,000. Tom's basis for computing depreciation is $12,000. A) True B) False 4. David Dawson owned two shares of a corporation's common stock. He paid $60 for one share and $30 for the other share. The corporation declared a stock dividend which gave stockholders two new shares of common stock for each share they held. After the distribution, David owns six shares of stock with an adjusted basis of $15 each. A) True B) False 5. In a gain situation, the holding period of gift property begins on the date of the gift. A) True B) False 6. If a wife sells depreciable property to her husband, the gain on the sale is treated as ordinary income. A) True B) False 7. The holding period of property acquired from a decedent is considered to be long term regardless of when the property was acquired or disposed of. A) True B) False 8. Recognition of a gain or loss always occurs at the time of sale or exchange. A) True ...
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...1. Leonard lamberts commercial building which had an adjusted basis of $500,000, was partially destroyed by fire. the fair market value was $800,000 just before the fire and $600,000 immeditately after Leonard received $150,000 insurance proceeds and deducted a $50,000 casualty loss. what is leonard's basis in the building before nay repairs are made? a.300,000 b.350,000 c.450,000 d.500,000 e.600,000 2.lenn sells 100 shares (basis of $5,000) of x corporation common stock on March 8 2010, for $4,000. On march 29, 2010 lenn purchases 50 shares of x common stock for $2,500. lenn's recognized loss on the sale is: a.$1000 b.$500 c.$1500 d.$0 3. in 2010 allen sold an asset which cost $70,000. allen incorrectly claimed $40,000 depreciation over a five year period. he should have claimed $50,000 depreciation. what was the adjusted basis when sold? a. $0 b. $20,000 c. $30,000 d. $50,000 e. $70,000 4.which of the following items is not a reduction to the basis of an asset? a. depreciation b. assessments for maintenance of sidewalks c. cash rebate from manufacturer d. casualty losses 5. james sold property to a buyer who paid him $400,000 cash and assumed an existing mortgage of $150,000. the property had cost $250,000 and he had made improvements of $50,000. depreciation of $100,000 has been claimed and selling expenses were $20,000. what is the amount of gain? a. $100,000 b. $200,000 c. $250,000 d. $280,000 e. $330,000 6.brian receives a nontaxable...
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...Affairs, School of Business Department of Accounting, Economics, and Finance Finance 374 - 301, Estate Planning and Taxation Online, Fall, 2013 Instructor: Bruce K. Grace, Ph.D., CFA, CFP® Office: 222C Combs Building Phone: 783-2357 E-mail: b.grace@morehead-st.edu Office Hours: MWF1 - 10:15 - 1:30 and by appointment. Required text: Dalton and Langdon’s Estate Planning, 6th ed. Catalog Description: Prerequisites: FIN 360. Covers estate planning and taxation issues such as documentation, legal ownership to property, trusts, the federal gift tax, probate and asset valuation. Course Objective: The objective of Finance 374 is to provide the student with the framework necessary to appreciate, understand, and resolve the problems facing those involved in estate planning. This is a course that is usually completed by students in our financial planning track. The course is a blend of theory and practice. Theory tells us why, and practice tells us how. Learning Outcomes: Knowledge of the methods of analysis of estate planning matters. Use of computer and other technological skills. Demonstrate knowledge of ethical issues in estate planning. Methods for Measuring Outcomes: Exams will assess knowledge and application of estate planning issues. Homework will assess technological skills and knowledge and application of estate planning methods. Course Grade Determination: 4 Exams @ 100 points each 80% Average...
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...included in the donor’s gross estate under § 2035(a). • § 2035(b) requires the federal gift tax paid by the decedent or the decedent’s estate on any transfers made after 1976 by the decedent or the decedent’s spouse within three years of the decedent’s death to be included in the decedent’s gross estate. o $13K + ($75K - $60K)*.26 = $16,900 Tax but 2505(a)(1) Unified Credit against gift tax ($345,800) (b) If decedent gave Child a life insurance policy on decedent’s life worth $10K, with a face value of $75K, decedent dies 2 yrs later, what’s included in decedent’s gross estate. • $75K would fall into the time frame of § 2035(a)(1) and designated as property • $75K would be included in the decedent’s gross estate pursuant to § 2035(a)(2) because the interest transferred by the decedent was one that, had it been retained by the decedent, would have enlarged the decedent’s gross estate under § 2042. o Insurance becomes valuable at death (c) If after the gift, Child made annual premium payments totaling $3K? Assume that Decedent’s total pre-gift premium were $12K? • Authority: Rev Rul 72-282; see also: In regards Silverman’s estate 521 f.2d 524. • We are going to create a fraction: o Inclusion ratio: ($12K (paid by decedent) / $15 (total paid)) x $75K o Exclusion ratio: (3/15) x $75K ♣ Must look at the numerator, this determines whether there is an inclusion ratio or exclusion ratio. (d) What is the result if during the time between the gift and Decedent’s death,...
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...DONOR’S TAX CHAPTER 6 DONOR’S TAX Problem 6-1 1. False – during the lifetime of the donor. 2. True 3. True 4. False – there is no consideration in donation. 5. True 6. False – It is enough that the duly representative of the incapacitated donee to receive the donation. 7. True 8. False – Real property donation must be put in writing regardless of value. 9. True 10. False – The value of donated personal property must exceed P5,000. 11. True 12. True 13. False – not gifts. 14. False – constitutes dividend income. 15. True Problem 6-2 1. False – dowry is not allowed to nonresident alien donor. 2. False – the donee’s identity is not material to make the donation valid. The donor can make donation to an unborn child. 3. True 4. True 5. False – If resident alien donates, he shall be subject to donor’s tax in the Philippines for his properties within and outside the Philippines 6. True 7. True 8. True 9. False – only one-half of the share is donated. 10. False – only if the gift is on account of marriage. 11. False – only the first P100,000 is exempt. 12. False – may be subject to business tax such as VAT, custom duties, or excise tax. 13. False - When the donee is a stranger, the tax rate is 30%. 14. True 15. False - excise tax – the tax is imposed on the act to transfer property by way of gift inter...
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...University School of Law Herzog Summer Visiting Professor in Taxation University of San Diego School of Law FOUNDATION PRESS © 2013 © 2013 By FOUNDATION PRESS ISBN PREFACE This supplement is designed to update our casebook and accompanying study problems book: Federal Wealth Transfer Taxation: Cases and Materials (6th ed. 2009), and Federal Wealth Transfer Taxation: Study Problems (6th ed. 2010). We hereby grant permission to users of Federal Wealth Transfer Taxation to distribute copies of this supplement to students, either in hard copy or in electronic form. This supplement is current through August 1, 2013 and incorporates The American Taxpayer Relief Act of 2012 (Pub. L. No. 112-240, 126 Stat. 2313 (2013)) and The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Pub. L. No. 111-312, 124 Stat. 3296 (2010)). We want to thank Jack Bogdanski (Lewis & Clark) for his detailed comments on the prior edition of these books. This is the third update to Federal Wealth Transfer Taxation since the July 16, 2010 death of our lead author, mentor, and dear friend, Paul McDaniel. Paul was a co-author of the original edition of this book in 1977, with Hank Gutman, Stanley Surrey, and Bill Warren, and remained as co-author of the five subsequent editions of the book. Being asked to join Paul as a co-author on this book was one of the proudest (and most intimidating) moments of our careers. In working with...
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...sole ownership of the property. Community property c. Grandparents want to make an outright gift of undeveloped land to adult children to be held as undivided co-owners. Joint tenants 13) LO4 Addison provides all of the support of her dependent father, Walter, who lives with her. Because Walter is very proud and wants to appear independent, Addison gives him the money to pay his medical bills. Is Addison subject to the Federal gift tax as a result of these transfers? Explain. No, the Federal gift tax does not apply to tuition payments made to an educational organization on another's behalf. Nor does it apply to amounts paid on another's behalf for medical care. 18) LO5 Regarding the gift-splitting provision of sect 2513, comment on the following. a. What it was designed to accomplish. a gift made by a person to someone other than his or her spouse may be considered, for Federal gift tax purposes, as having been made one-half by each spouse. b. The treatment of any taxable gifts previously made by the nonowner spouse. c. How the election is made to split gifts is not necessary when husband and wife transfer jointly owned or community property to a third party. d. The spouses are divorced during the year, they may still split the gift if neither marries anyone else during the year. e. The utility of the election in a community property jurisdiction is made to split gifts is not necessary when husband and wife transfer jointly owned or community property to a third...
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...The Federal gift tax is imposed on the right to transfer property by one person (the donor) to another (the donee) for less than full and adequate consideration. The tax is payable by the donor. If the donor fails to pay the tax when due, the donee may be held liable for the tax to the extent of the value of the property received Since the donor cannot pay or cannot be located, as in the this case, the IRS can pursue the donees for the tax under the doctrine of transferee liability. For individual who are neither residents nor citizens of the United States (i.e. nonresidents a liens, or NRAs), the Federal gift tax appliles only to gifts of property situated within the United States. Exempted, however, are gifts of intangibles, such as stock and bonds. For decedents who are nonresident aliens, the Federal estate tax is imposed on the value of property located within the United States. However, unlike the gift tax, the estate tax applies to stock in U.S. corporations. Mr. Kim's concerns are groundless. Except for property located within the United States, the Federal estate tax does not apply to nonresident aliens. The country in which a person happens to die has no relevance in regard to the application of U.S. transfer taxes. For NRAs, any gifts of properties (other than intangibles) located within the United States will be subject to the federal gift tax. Arturo could avoid any U.S. gift tax by having the children buy the properties in their own names. For decedents who...
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...CH 12 The scope of the estate tax Sec 2033 Section 2033 · Gross estate: Value of the property to extend of interest at time of death Section A · estate tax is excise tax: “tax included on the property” · Tax base must include the value of the property that most obviously is transferred (FUNCTION OF 2033) · Section 2033 includes (GROSS ESTATE) o Decedent’s securities o Bank deposits o Real state o Income earned before death are collectible by the estate § Rent § Interest § Dividends § Partnership profits § Refunds § Vested rights § Promissory notes (matured or not) § Insurance policies § Saleable (commercial) leasehold interest § Interest in rented property · By either tenants in common or one-half community. § Federal and State bonds are includable despite their exemption from other taxation either by their express terms or by law · REG 20.2033 o Descendant hold only legal title (trustee) under enforceable oral or written does not possess an interest taxable under section 2033. § Ex: agent o ONLY DIRECTLY OWNED PROPERTY · Principal reliance on judicial and administrative interpretation of Sec 2033’s simple language potentially would yield over inclusions “many” o There are not many limits o Limits must be established o Congress explicit responded what property interest that are to be taxed, eventhough they lied beyond the reach of 2033. § 2033- Base line § Section 2041 · in...
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...The inheritance tax, or estate tax, is a tax which the United States levies on the total taxable value of the estate of a deceased person. The amount of tax is calculated regardless of the method in which the assets of the estate are transferred to the person's heirs: assets included in a will, transferred automatically because the person died intestate or as an insurance benefit or account payoff. Inheritance tax is paid by the executor of the estate or by the person in charge of its assets. The United States has a consolidated policy on inheritance and gift tax so that a person cannot give away his or her estate to potential beneficiaries shortly before death in order to avoid taxation; beneficiaries would simply pay gift tax rather than inheritance tax in this case. The federal government makes a distinction between the "gross estate" (all assets) and the "taxable estate" (assets less a certain number of allowable deductions such as funeral expenses, some charitable contributions and various other deductions). In most cases, if the estate is left to a charitable organization or a surviving spouse, no inheritance tax is due. There are also exclusions for a certain portion of the estate; however, these have been frequently changed by recent tax legislation, and usually, it is worth consulting a professional to determine what amount of the estate is not taxable under current federal law. In part because these complexities make it possible for some wealthy people to establish...
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...Family Owned Business Estate Planning In this case study, as John’s financial advisor, I have been tasked with reducing, or eliminating the potential estate tax burden of John’s estate. Additionally, I am tasked with maximizing the amount of wealth transferred to John’s heirs. John, age 61, is married to Jane, age 60. He owns Victory Company, a family business professionally valued at $5.6 million. He and Jane have three children and seven grandchildren. One son, Paul, manages Victory Company and will someday own it. John's overall wealth is about $15 million. This includes the $5.6 million value of Victory Company, which nets $1.5 million before tax and after paying John a $300,000 salary plus liberal fringe benefits. After taxes, John earns about $400,000 to $600,000 more per year than he and Jane spend. The balance of John's wealth includes two homes (a main residence and a vacation home) worth a combined $2.7 million; $1.7 million in his 401(k) plan; cash assets and a stock and bond portfolio totaling $1.8 million; $2.9 million in income-producing real estate; and $300,000 in sundry assets. There also is $6.2 million in insurance on John's life that is now owned by an irrevocable life insurance trust (ILIT). This insurance includes a $1.2 million whole life policy and $5 million in 10-year term insurance with six years remaining in the term. Business This first thing I need to get a handle on is John’s company. The $5.6 million value of Victory Company represents over...
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...Wills, Trusts, and Estates FIN 4004 Spring, 2013 CRN 13341 (MW 4:00-5:15pm) Jason Bryan Malone, Esq. 2117 Pamplin Hall Email: jbmalone@vt.edu Office Hours: MW 12:10pm-1:10pm (Additional hours will be posted on Scholar throughout the semester) (Please feel free to make an appointment or come by during other times) Text: Estate Planning for Financial Planners, 6th ed., Michael A. Dalton and Thomas P. Langdon Course Description: Estate Planning focuses on the efficient conservation and transfer of wealth, consistent with the client’s goals. It is a study of the legal, financial and non-financial aspects of this process, covering topics such as trusts, wills, probate, advanced directives, charitable giving, wealth transfers and related taxes. Course Objectives: At the end of this course, the student should be able to understand, explain, analyze and evaluate estate planning needs and taxation in order to recommend appropriate techniques for meeting estate planning and objectives, including without limitation: • Determine client estate planning needs and objectives, taking into account financial and non-financial (behavioral/social/emotional) aspects of estate planning • Understand the effects of the lack of estate planning, including state laws of intestacy • Project estate taxation and liquidity needs in various situations • Recommend appropriate and efficient methods of wealth transfer for a client’s situation, including...
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...Federal Estate Tax Introduction Federal estate taxes have been a heavily debated topic since the law was introduced in 1916. The IRS defines estate taxes as “a tax on your right to transfer property at your death.” A History of the Tax Estate taxes trace back to as early as 700 B.C. Historians believe there was a 10% tax in Egypt on the transfer of property upon death. In the United States, the tradition of taxing assets after death was used on and off from 1797 to fund wars. The first federal estate tax law was passed under the Stamp Act of 1797 to fund an undeclared naval war on France. It was repealed 5 years later, and another law was not passed requiring the tax until the Tax Act of 1862. This particular act was enacted to help finance the Civil War and was repealed in 1870. Two important Supreme Court cases set the stage for the estate taxes Americans face today. First, in 1874 a citizen argued estate taxes are unconstitutional because they are a direct tax and under the Constitution, must be allocated among the states according to population. The Supreme Court disagreed arguing direct taxes tax land, houses and other permanent real estate. 2 The second case didn’t directly involve the issue of estate taxes, but instead challenged the legality of the Income Tax Act of 1894. However, this lawsuit indirectly affected estate tax laws because it included gifts and inheritances subject to income tax. “The Supreme Court struck down the whole bill because the tax...
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...000 – 2,500 * 75%, yr2) Separately stated Jack Dividends $125 $250 (Yr1= 25% of 500/ Yr2 = 25% of 1000) Interest Income $500 $625 (Yr1= 25% of 2000/ Yr2 = 25% of 2500) Jill Dividends $375 $750 (Yr1= 75% of 500/ Yr2 = 75% of 1000) Interest income $1,500 $1,875 (Yr1= 75% of 2000/ Yr2 = 75% of 2500) b. Complete UpAHill’s Form 1120S, Schedule K, for year 1. Year1 1120S 1. Ordinary business income (loss) 42,500 2. Net rental real estate income (loss) 0 3a. Other Gross rental income (loss) 0 b. Expenses from other rental activities 0 c. Other net rental income (loss) 3b-3a 0 4. Interest income 2,000 5....
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...who are named in the trust document. 7. A trust created during the lifetime of the individual is a living trust while a trust created at the death of the individual is a testamentary trust. 8. Is a trust subject to federal income tax? Yes and if so what tax form would be filed? Trust and Estate Tax Return. 9. If an individual wanted to control his or hers assets after they died they would have established through their living trust a will. 10. This type of trust declaration would allow the individual to avoid probate but would still be subject to taxation by federal estate tax . 11. A gift qualifying for the annual exclusion must be $14000 or less and be a present interest gift. 12. The person making the gift is the donor and the person receiving the gift is the donee. 13. If an individual makes a taxable gift they must file a tax report on money above the annual gift exclusion. 14. Donor makes 11 cash gifts qualifying for the annual exclusion but make 1 taxable gift the donor must subtract the taxable gift from his/her lifetime inclusion and report the taxable gift. 15. The donor has a cost basis of $25 and has owned the stock since 4/15/13 on the date of the gift fair market value is $40 per share. * What value would be used for gift tax purposes?...
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