Question 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?

Accepted Answer

Identify exclusions: Direct payments for Tuition and Medical are fully excluded. Then apply Annual Exclusion to the remaining gifts.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Applying the annual exclusion to the total amount including tuition/medical, or forgetting to subtract the annual exclusion from the cash gift.

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?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA TCP Practice Exam 4

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