[Soproudofmyself]

Ok…so this might be an easy concept to some of you guys but I’m lost. lol

So…the “unified estate and gift tax credit” is a combined credit for federal gift tax and estate tax.

Gifts of $13,000 or less per year/per person are excluded from tax. In my study materials gift tax rules mention a $1,000,000 lifetime credit and they also mention something about $345,800?

How does the $1,000,000 lifetime credit work? Does that mean I can avoid tax on gifts if I make them under $13,000 per individual thoughout my lifetime but only up to $1,000,000. So if I were rich, I can give 76 people $13,000 thoughout my lifetime and not pay taxes on that?

What is the $345,800 about?

Ok, so now what’s the unified thing about?

They are combining estate and gift tax credit…so the $1,000,000 mentioned above includes estate transfers as well?

But there is reference to $5,000,000 for estates?

Help! =)

I wish I had someone to study with…

[Minimorty]

$13,000 per recipient, per year, unlimited in total amount of gifts. If you want to give away $13,000 to 10 million different people, you wont be hit with any tax.

In addition to this, you can make $1 million of additional gifts throughout your lifetime. For example, you already gave your son $13,000 for the year, but you want to give him another $1 million. You are not taxed on that $1 million. Once you use the $1 million up, you can still make annual gifts under $13,000, but anything above that will be taxed.

Here is where the $345,800 comes in. Technically, you “pay tax” on the $1,000,000 gift, but they give you a $345,800 credit, so you end up paying nothing in taxes. That's pretty much all you need to know about that. The $345,800 is a tax credit.

For the estate tax, you can deduct the first $5 million, so you dont have to pay any taxes if you die with an estate less than $5 million. The “unified” part comes into play because if you used your $1,000,000 of lifetime gift exclusion, then your remaining estate deduction is $4,000,000. So you need to remember that you get a $5,000,000 deduction less any portion of your lifetime gift tax exclusion that you used.

For 2011-2012, the gift and estate tax limits were unified and are both at $5 million. I dont know what year the exam tests though.

Let me know if you need any clarification.

[Anonymous]

Mini, you rock!!!!!!!!!!

Tell me you're a tax person, so I can excuse my inability to understand some of this stuff 😛

[Soproudofmyself]

Thanks for your input mini!

That was really helpful!

[StudyHard]

thank you, mini!

FAR 87 (8/19/11)
AUD 83 (11/19/11)
Reg 82 (2/25/12)
BEC 78 (5/30/12)
I'm done with studying!!!!!!

[jdj017400]

@Soproudofmyself , @Minimorty

Hopefully this helps:

https://www.aicpa.org/BecomeACPA/CPAExam/ExaminationContent/NewPronouncementPolicy/Pages/new_pronouncements.aspx

AICPA states that it tests items in effect for the previous 6 months, so this first quarter should be 2011 amounts.

2011 Amounts: The Applicable Credit is $1,730,800 and the Estate Exclusion is $5,000,000

BEC - 80 (11/30/2010), Lost Credit - Retake 11/30/2012, 80 (FINISHED!)
AUD - 71 (05/31/2011), 79 (08/28/2011)
REG - 70 (11/30/2011), 87 (02/09/2012)
FAR - 61 (5/31/2012), 80 (08/31/2012)

[Soproudofmyself]

Hi Minority! I'm back! I dropped estate and gift and moved on…I'm reviewing it again and I'm still questioning myself. After looking at it further today, I'm questioning what you mean by the $5 million estate exclusion getting reduced by the amount of lifetime credit used? Aren't they 2 separate things?

You file estate taxes (form 706) if your estate exceeds $5 million at date of death (or the alternative date). If you do exceed $5 million, then the applicable credit is applied? The applicable credit for 2011 is 1,730,800. The credit is unified so it's used for both gift (709) and estate (706)…and it's a lifetime credit, so once you use it all up, you no longer have a credit. But the amount of the credit you use does not affect the fact that you only file estate 706 if it exceeds $5 million?

Thanks! again…not taking any chances….lol i can't wait to be done with this exam so i can move on with my life =) we all want to move on =)

[Minimorty]

Almost correct. Let's say you make lifetime gifts of $2.5 million. That takes away from your estate exemption. Now if your estate exceeds $2.5 million, you have to file a 706.

[Soproudofmyself]

Thanks Minority!

and a gift of property takes on donor's value not the FMV at date of gift right?

[Soproudofmyself]

nope, it takes on the FMV at date of gift. Now I'm confusing it with the rollover basis for computation of gains/losses ughhhh lol

[Soproudofmyself]

lol i just realized it's Minimorty, not minority lolol sorry…

[Minimorty]

Close again. Basis depends on a number of things and it depends if we are talking about basis from gifts or basis from an estate you inherit. As a general rule, the basis of property inherited is the FMV at the date of death (or alternate date if used). The basis from a gift is USUALLY the basis of the donor, but depends on what the fmv is at the date of the gift and the price at which you sell the asset in the future. There is a separate gain basis and loss basis.

This article is a little dated, but the concepts apply today. It was the best I could find with a 2 minute search on my phone.

https://library.findlaw.com/1999/Jan/1/126098.html

[Soproudofmyself]

thanks!

but when you are completing form 709 for gift tax, you don't know what the person receiving the gift is going to sell it for, so the person giving the gift is taxed on it's basis? then when the person receiving the gift is going to sell it, that's when the weird rule affects it, right? the weird rule is another subject that applies to gifted property and related party transactions…

[Minimorty]

No, no. The person giving the gift is taxed on the FMV of the property being gifted. On the 709, there is a box that asks for the donor's basis. This may or may not be the same as the recipient's basis. You wont need to put the recipient's basis on the 709.

https://www.irs.gov/pub/irs-pdf/f709.pdf

[Soproudofmyself]

oh! i sure hope i dont confuse all this on day of exam. i'm almost positive i'll get a simulation on gift, trust or estates! lol

thanks!

[Anonymous]

Great information!! Thank you!!

I have a quick question. So the income distribution deduction equals the lesser of: actual distribution to the beneficiary OR DNI. Then it further says, whatever the lesser amount is taxed at beneficiary level rather than at an estate level. I understand that.

However, can the taxpayer deduct that “taxed amount” as an itemized deduction not subject to 2%. Becker mentions that in R2, or am I understanding that wrong?

[Author]

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