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Submitted By shonuntria
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ACCT224
Week 4 Assignment
Answering 2 questions for Tax Year 2011
By
Shonuntria Floyd
Professor: Daniel Louviere
March 28, 2015

Question one:
1. Nancy gave her grandson, Sean, twenty acres of land. Her tax basis in the land was \$25,000. Nancy's marginal tax rate for the current year is 45%; her grandson's is 25%.Its fair market value was \$575,000 at the date of the transfer. If the gift tax rate is 40% and she has never made a gift in excess of \$10,000 before this, what amount of gift tax will she pay? What is their net tax savings percentage as a family unit if Sean sells the land?

Answer:
First Who pays the gift tax? The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. (Who pays the gift tax?, 2013). So for the above scenario I will be using tax year 2001 because there were substantial gift tax credits available that she could take advantage of since she had not made any previous gifts. According to the IRS for the years 2009- 2012 the exclusion for 2011 per gifted was \$13,000.00 which could be deducted from the 20 acres of land FMV of \$575,000.00 Calculations: \$575,000 | FMV ON LAND | \$13,000 | EXCLUSION FOR GIFTEE | \$562,000 | 0 | GST TAX | \$562,000 | TOTAL TAXABLE GIFT | \$155,800 | BASED O \$500K FOR YR 2011 | \$24,800 | 40% OFF \$62K | \$180,600 | \$180,600 | UNIFIED CREDIT | \$0 | NET GIFT TAX |

Additionally if the land is sold for \$575K and the tax basis is \$25K the marginal tax would be as follows: \$575,000 - \$25,000 = \$550,000 X 25% = \$137,500.00
On the other hand if the land is not gifted to the grandson and just sold it the marginal tax would be higher as follows: \$550,000.00 X 45% = \$247,500
So due to the tax exclusions/unified credits she did not incur any gift tax and the net tax savings is as follows: \$247,500 -...

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