Question

Using property she inherited, Lei makes a 2020 gift of $16,200,000 to her adult daughter, Doris. Neither Lei nor her husband, Greg, has made any prior taxable gifts. Assuming that a flat 40% tax rate applies, determine the Federal gift tax liability if (a) the election to split gifts is not made and (b) the election to split gifts is made. (c) What are the tax savings from making the election

Answer 1

a)$1,842,000

b) $808,500 each

c) $$1,842,000

Step-by-step explanation:

Worth of Gift made = $16200000

Assuming a Flat rate of 40%

Determine federal gift tax liability

a) When Election to split gift is not made

Taxable gift = $162,000,000 - annual exclusion

= 162,000,000 - 15,000

= $16,185,000

Determine the Gift tax = [ 345800 + ( 16,185,000 - 1,000,000 ) 40% ]

= $6419800

applying values gotten from computing tax table ( Appendix A )

Given that the max credit allowed for 2020 = $4577800

hence Gift tax due = $1,842,000 ( 6419800 - 4577800 )

b) If election to split is made i.e. section 25I3 is elected

Gift tax due = $8,100,000 - $15,000 = $808,500 each ( Greg and Lei

i.e. For Greg and Lei

c) Tax savings made

Tax savings =$1,842,000 ($1,842,000 -$0)