Question

As the first gift from their​ estate, Lily and Tom Phillips plan to give $24,980 to their​ son, Raoul, for a down payment on a house.

a. How much gift tax will be owed by Lily and​ Tom?

b. How much income tax will be owed by​ Raoul?

c. List three advantages of making this gift.

Answer 1

The annual gift tax exclusion is $15,000 for the 2018 tax year.

As Lily and Tom, each has a separate limit of 15,000, their combined limit is 30,000

a. As 24,980 is within 30,000 no gift tax is owed.

b. Raoul also does not pay any tax, as the tax is only when by the giver when the limit breaches, not by the receiver.

c. Three advantages of making this gift are:

• They are effectively able to transfer money to their son without any gift tax on such transfer and Raoul also does not pay any taxes on such receipt.
• Income can be shifted from higher tax brackets of Lily and Tom to lower tax brackets of Raoul
• Provides financial assistance to their son