ExpertMedium1 markMultiple Choice
CPA · Question 14 · Area I: Individual Compliance and Planning
A donor gifts $50,000 cash to their friend in Year 1. The donor also pays $25,000 directly to a university for the friend's tuition and $10,000 directly to a hospital for the friend's medical expenses. Assume the annual gift tax exclusion is $18,000. What is the amount of taxable gifts for Year 1?
A donor gifts $50,000 cash to their friend in Year 1. The donor also pays $25,000 directly to a university for the friend's tuition and $10,000 directly to a hospital for the friend's medical expenses. Assume the annual gift tax exclusion is $18,000. What is the amount of taxable gifts for Year 1?
Answer options:
A.
$67,000
B.
$32,000
C.
$50,000
D.
$17,000
How to approach this question
Identify exclusions: Direct payments for Tuition and Medical are fully excluded. Then apply Annual Exclusion to the remaining gifts.
Full Answer
B.$32,000✓ Correct
B
IRC §2503(e) excludes direct payments for tuition and medical care. <br/>Taxable Gift = (Cash Gift $50,000 - Annual Exclusion $18,000) + (Tuition $0 taxable) + (Medical $0 taxable) = $32,000.
Common mistakes
Applying the annual exclusion to the total amount including tuition/medical, or forgetting to subtract the annual exclusion from the cash gift.
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