ExpertMedium1 markMultiple Choice
CPA · Question 16 · Area I: Individual Compliance and Planning
In Year 1, a donor makes a taxable gift of $2,000,000. The donor has made no prior taxable gifts. The applicable credit amount (unified credit) for Year 1 corresponds to an exclusion amount of $13,610,000. The gift tax rate is 40%. How much gift tax must the donor pay out-of-pocket in Year 1?
In Year 1, a donor makes a taxable gift of $2,000,000. The donor has made no prior taxable gifts. The applicable credit amount (unified credit) for Year 1 corresponds to an exclusion amount of $13,610,000. The gift tax rate is 40%. How much gift tax must the donor pay out-of-pocket in Year 1?
Answer options:
A.
$0
B.
$800,000
C.
$4,644,000
D.
$2,000,000
How to approach this question
Calculate tentative tax. Compare to available Unified Credit. If Credit > Tax, Pay $0.
Full Answer
A.$0✓ Correct
A
IRC §2505. The donor has a lifetime exclusion of $13,610,000. Since the cumulative taxable gifts ($2,000,000) are less than the exclusion amount, the unified credit covers the entire tax liability. No out-of-pocket tax is due.
Common mistakes
Calculating the tax but forgetting to apply the unified credit.
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